World Insurance Trends [Reprint 2016 ed.] 9781512802337

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WORLD INSURANCE TRENDS

Conference Theme " T h e Role of Private Enterprise in Insuring Life and Property V a l u e s "

WORLD INSURANCE TRENDS Editors: DAVIS W. DAN M.

GREGG McGILL

Proceedings of the First International Insurance Conference Philadelphia, Pennsylvania

May i957

Philadelphia U N I V E R S I T Y OF P E N N S Y L V A N I A

PRESS

© 1959 by the Trustees of the University of Pennsylvania Published in Great Britain, India, and Pakistan by The Oxford University Press London, Bombay, and Karachi Library of Congress Catalogue Card N u m b e r : 58-11409

Made and printed in Great Britain by William Clowes & Sons Limited, London and Beccles

Foreword On May 20-22, 1957, four hundred and fifty of the world's insurance leaders assembled in Philadelphia, U.S.A., to pay homage to the Wharton School of Finance and Commerce of the University of Pennsylvania and to participate in a conference which was without precedent in the annals of insurance. That unique affair was called the First International Insurance Conference and in this volume is contained the written record of the Conference. The spirit of fellowship and international goodwill fostered by the Conference can not be reproduced in these pages but will, it is hoped, be perpetuated in the hearts and minds of the persons whose presence assured the success of the Conference. The First International Insurance Conference was the culmination of a year's planning by the faculty and friends of the Wharton School of Finance and Commerce. It grew out of the plans for the year-long celebration of the 75 th Anniversary of the Wharton School, the oldest collegiate school of business in the United States. The pioneering role of the Wharton School in the development of collegiate insurance education in the United States made it highly appropriate that one of the major events of the celebration should recognize the close link between the Wharton School and the insurance industry. Dr. Davis W. Gregg, President of the American College of Life Underwriters, and a loyal and imaginative alumnus of the Wharton School, suggested that the event be international in outlook and scope. His suggestion was enthusiastically endorsed by the Wharton School Insurance Department and Administration and plans for an international insurance conference were set in motion. Dr. Gregg and Dr. Dan M. McGill, Professor of Insurance at the Wharton School and Executive Director of the S. S. Huebner Foundation for Insurance Education, were invited to serve as Directors of the Conference. They immediately organized a Planning Committee of outstanding insurance authorities and University of Pennsylvania administrators to review the proposal and formulate plans for its implementation. The members of this Committee, along with the members of all other Conference committees, are listed in a later section of these Proceedings. It was agreed at the outset that the general theme of the Conference should be "The Role of Private Enterprise in Insuring Life and Property Values." It was further agreed that the nature of the Conference should be such as to provide a forum at which the world's insurance leaders could exchange ideas in an atmosphere of critical objectivity and gain a new perspective as to both their responsibilities and opportunities. In order to create such an environment, the Planning ν

vi

Forcword

Committee decided that attendance should be limited to the chief executive officers (or their alternates) of the leading insurance companies, prominent insurance educators, and important governmental figures. Only those persons specifically invited by the University of Pennsylvania were privileged to attend. A Sponsoring Committee for the Conference was organized with John A. Diemand, President of Insurance Company of North America Companies, and M. Albert Linton, Chairman of the Board, Provident Mutual Life Insurance Company, serving as Co-Chairmen. The Committee consisted of more than one hundred distinguished world insurance leaders drawn from twenty-six countries. The Sponsors served the University in many ways, including the nomination of persons to be invited, arranging for authorship of papers, and dissemination of information concerning the Conference. The scope of the undertaking necessitated the formation of several other committees. The Program Committee was given the vital responsibility of conceiving and implementing a program which would interest and stimulate a group of toplevel executives with widely diverse backgrounds. The complexity of this task can be appreciated when it is realized that for the first time in the history of insurance the Conference brought together, from all parts of the globe, representatives of both the public and private spheres of insurance activity, representatives of all lines of private insurance, and educators and practitioners. The heterogeneity of the audience was more than matched by the dissimilarity of the background of the Conference speakers. Of many nationalities, they were drawn from such diverse areas of professional activity as medicine, law, government, finance, labor, journalism, industry, and insurance. The Program Committee functioned under the Chairmanship of Dr. McGill. Publicity for the Conference was guided by a committee composed of illustrious public relations experts from the insurance industry and headed by Donald T. Sheehan, Director of Public Relations for the University of Pennsylvania. Paul Blanshard, Jr., Assistant Director of the News Bureau of the University of Pennsylvania, served as publicity coordinator and handled many of the arrangements at the Conference itself. Others who played an active role in processing the news of the Conference were Milton Amsell and Chester C. Nash of the Institute of Life Insurance and Garrett Pettingell of the New York Life Insurance Company. Frank Harrington, Advertising Manager, Insurance Company of North America and member of the Publicity Committee, contributed in many directions to the success of the Conference. Women's activities at the Conference were under the direction of a Women's Committee, headed by Mrs. Walter A. Craig, prominent civic leader in Philadelphia. Dr. Wayne E. Howard of the Wharton School served as Chairman of Arrangements for the Conference and was ably assisted by Dr. Richard deR. Kip, also of

Foreword

vii

the Wharton School. Miss Mildred A. Brill, Administrative Assistant of the S. S. Huebner Foundation for Insurance Education, handled in magnificent fashion the myriad administrative details of the Conference, with the competent assistance of Mrs. Helen L. Schmidt, Assistant to the Dean of the American College of Life Underwriters, and Mrs. Ruth E. Messick. Dr. C. A. Kulp, late Dean of the Wharton School, and Vice-Dean Willis J . Winn gave unstinted support to the Directors of the Conference and were especially helpful in formulating the program and obtaining speakers. To all the aforementioned persons and committee members, the Directors of the Conference acknowledge their great indebtedness and heartfelt gratitude. They are particularly indebted to those persons who, through the preparation of papers, have helped to extend the frontiers of insurance knowledge and strengthen the institution ofprivate insurance. Finally, they would like to express their appreciation to the officers of the University of Pennsylvania whose unflagging interest in the project and willingness to underwrite the financial risk made the Conference possible. It should in no way detract from the quality of the papers included in these Proceedings to point out that neither the University of Pennsylvania nor any of the Conference administrative personnel necessarily endorse the opinions expressed by the authors of the papers. The authors were chosen because o f the belief of the University that they could make a real contribution to such a gathering, but their observations and conclusions are their own. Philadelphia January,

1958

DAVIS W . GREGG a n d D A N M .

MCGILL

Contents Foreword PART I. THE INSURANCE ENVIRONMENT IN MAJOR WORLD AREAS

Introduction Australia—M. C. Buttfield Continental Europe—Carl Briner Great Britain—Sir John Benn Japan—Gen Hirose Latin America—Jorge Bande United States of America—S. S. Huebner

3 5 17 27 38 59 68

PART Π. GENERAL CONFERENCE ADDRESSES

The American Design: E Pluribus Unum, But Still Many—John Sloan Dickey The Voice of Truth—Frederic W. Ecker Elements of a Healthy Environment for the Private Insurance Institution—Alfred C. Neal Insurance and the American Medical Profession—Isidor S. Ravdin, M.D.

77 88 93 100

PAST ra. IMPACT OF INFLATION ON INSURANCE

Hyperinflation—Earl Hicks Creeping Inflation—Charles R . Whittlesey World Inflationary Conditions—Seymour F. Harris

109 125 137

PART IV. REGULATION OF INSURANCE

Conceptual Framework for Regulation of Business Enterprise— Adolf A. Berle, Jr. The Pattern of State Regulation of Private Insurance in the United States—James P. Walsh Argentinian Private Insurance and Its Present Relationship with the State—Horacio A. Mascarenhas The Relationship between the State and the Insurance Business in Colombia—Edmundo Merchan ix

157 163 177 185

χ

Contents

PAKT V. HEALTH INSURANCE

Public Health Trends and Problems—M. Allen Pond British National Health Service: A British View—J. Leslie McCallum, M.D. British National Health Service: An American View—Paul F. Gemmili The German Experience with Health Insurance—Oscar Weigert The Community Association Approach to Health Insurance in the United States—Basil C. Maclean, M.D. The Insurance Company Approach to Insurance in the United States —E. J. Faulkner Canadian Developments in Hospital Insurance—Frank C. Dimock

191 198

217 230 238 245 257

PAKT VI. TRENDS IN MARKETING

United States: Life Insurance—Walter Klem Property and Casualty Insurance—Erwin H. Luecke Italy—Eugenio Artom

271 282 289

PART VII. THE CAPACITY PROBLEM

The Role of Reinsurance—H. W . Yount The Life Reinsurance Market Today—Walter O. Menge Life Reinsurance in Japan—T. Fujikawa Property and Casualty Insurance Market—Arne Fougner The Reinsurance Market Today—Jaroslav Tuma

297 308 314 317 325

PART VUI. THE AMERICAN CONSUMER VIEWS INSURANCE

Attitudes of General Public—Donald M. Hobart Labor's View of Insurance—Jerome Pollack Management's View of Insurance—C. Henry Austin

333 344 355

PART IX. INSURANCE ENVIRONMENT IN SELECTED COUNTRIES

Argentina—Carlos L. Grandjean Brazil—Luiz Mendonça Furtado Canada—R. Leighton Foster Chile—Oscar Vollmer Martinez Colombia—Enrique Cortés Cuba—Enrique Godoy-Sayan Ecuador—Otto Arosemena Gomez Egypt—Naguib Harakany Finland—Helmer Spolander France—George Tattevin

365 376 391 402 421 429 447 452 461 475

Contents

xi

PART IX. INSURANCE ENVIROMENT IN SELECTED COUNTRIES—Continued

Western Germany—Hans Gerling Guatemala—Mario Granai India—B. K. Shah Indonesia—Percy D. Yang Italy—Piero Sacerdoti Mexico—Manuel Alonso De Florida The Netherlands—K. H. Schreiber Norway—Per M. Hansson Pakistan—K. F. Haider Paraguay—Antonio Iaffei Peru—Numa R . Leon de Vivera South Africa—T. A. Murray Spain—Antonio Lasheras-Sanz Sweden—Bertil af Jochnick Switzerland—Carl Briner Turkey—Emin Ansen Venezuela—Arturo J . Brillembourg Citation to C. Arthur Kulp

485 497 504 521 523 546 549 557 569 573 580 593 603 626 644 652 661 667

APPENDIX

Conference Committees Delegates to International Insurance Conference

671 676

PART I The Insurance Environment in Major World Areas

Introduction One of the primary objectives of the First International Insurance Conference was to foster the understanding of the private insurance mechanism in its manifold settings and modes of operation. In the furtherance of that objective it seemed desirable to obtain a description of the status and characteristics of the private insurance institution in each of the countries where it plays a significant role. Accordingly, an outstanding insurance authority in each of forty-eight countries was asked to describe, in 2,500 words or less, the institutional backdrop for private insurance in his country, adhering as closely as practicable to the following outline:

Economic Environment Nature of the Economy National income Distribution of income among economic groups Gross national product Population growth Short and long-range stability of the currency R o l e of insurance in the international balance of payments Capability of the banking system to service private insurance and other commercial transactions Availability of risk capital with specific reference to the needs of the insurance industry Investment outlets for private insurance funds Public attitudes toward life insurance property and casualty insurance

Political Environment State of development of the legal code governing commercial transactions Governmental activity in the area of insurance General regulation of private insurance Restrictions on flow of insurance across national boundaries Government compulsion of insurance Government participation in insurance

3

4

World Insurance Trends

Social Environment Population characteristics Familial and religious attitudes toward insurance Level of education Public understanding of insurance

Growth Potential for Private Insurance Since time would not permit the presentation of a paper on each of the countries involved, the insurance universe was arbitrarily divided into six geographical areas and one prominent individual in each area was invited to prepare a summary of the insurance environment in his geographical region. These summary papers were read at the Opening Session of the Conference and are reproduced in this subdivision of the Proceedings, along with the background paper on the "Elements of a Healthy Environment for the Private Insurance Institution." The descriptions of the insurance environment in the individual countries are presented in Part I X of these Proceedings. Papers were submitted for twenty-seven of the countries invited to participate in this phase of the Conference. Unfortunately, two of the papers were not in a form suitable for publication and have been omitted from this compilation. Other papers greatly exceeded the prescribed length and had to be drastically condensed, with some detriment to the continuity and content of the papers. Even after revision, some papers still exceed the original 2,500 word limitation. Many of the papers had to be translated and may have suffered some in the translation. It is hoped and confidently expected that the authors who so generously participated in this venture will have a sympathetic and tolerant attitude toward the revisions, sometimes drastic in nature, that had to be made to adapt the papers to the requirements of publication.

Australiat by M. C. Buttfield*

Growth and diversification of economic activity have been the outstanding characteristics of the Australian economy in the last decade. Population (currently million) has grown by over two million since the end of World War II thanks to a comparatively high birth rate and to what has been relatively the world's most ambitious immigration intake in recent times. Expansion has been facilitated by excellent returns for rural industry products, especially merino type wool, which make up most of Australia's export income, though metals and minerals are of increasing importance. ECONOMIC ENVIRONMENT Recent Economic

Climate

High export earnings have been supplemented by a strong and continuing flow of overseas investment, mainly direct investment in existing or newly-formed Australian branches and subsidiaries of overseas head offices and parent companies. The United Kingdom continues to be the main source of overseas investment in Australia but the proportion attributable to North American investors is fast increasing. The impressive growth since World War II has been readily absorbed in a great expansion of the basic industries, in public utilities, and in manufacturing industries generally. Full employment conditions have prevailed; wages have climbed high because of the operation of escalator clauses (since suspended in some jurisdictions) ; and inflation, which had been successfully suppressed during World War II, has since been more severe than in most other Western countries. High liquidity, coupled with a great urge for expansion, has boosted the country's propensity to import with consequent periodical strains on the balance of payments, leading in turn to physical limitations on imports. Closer regulation of trade, aided by the continuing strength of the wool market, has helped to restore a reasonably satisfactory level of overseas reserves. Traditionally, these are held in London, and the exchange rate of the Australian has been maintained at the t This paper was presented at the Conference on behalf of Mr. Buttfield by Mr. T. P. Scott, General Manager, The National Mutual Life Association of Australasia Limited, Melbourne. * General Manager, Australian Mutual Provident Society, Sydney. 5



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246

Voluntary

329

Number of attendances by children under five in all Child Welfare Centers during 1955

9,064,876

Number of children w h o attended Child Welfare Centers during 1955

1,296,293

Total number of registered live births during 1955

664,711

Day Nurseries (at 31.12.55) Number of Day Nurseries

583

Local Health Authority

572

Voluntary

11

Number of places in Day Nurseries maintained by Local Health Authorities

27,596

Number of places in Day Nurseries maintained by voluntary organizations on behalf of Local Health Authorities

428

Domiciliary (Home) Midwifery Services Number of Midwives employed by Local Health Authorities at 31.12.j5

6,612

Number of Midwives employed by voluntary organisations under arrangements with Local Health Authorities at 31.12.55

879

Home Nursing Number of home nurses employed on home nursing at 31.12.55 Whole-time

Part-time

Total

4,864

5,200

10,064

Number of visits paid by home nurses during 1955

24,292,250

Domestic Help Number of domestic helps employed whole-time at 31.12.55 Number of domestic helps employed part-time at 31.12.55

3,055 32,850

Health Visiting Number of Health Visitors, Tuberculosis Visitors and Other Nurses at 3 1 . 1 2 . 5 5 Whole-time

Part-time

Total

1,803

5,997

7,8OO

Number of visits paid by general duty Health Visitors in 1955

11,476,000 (approx.)

Number of visits paid by Tuberculosis Visitors in 1955

672,000 (approx.)

British National Health Service : A British View

215

Mental Deficiency Services (at 31.12.55) I. Number o f mental defectives under supervision ("voluntary" and "statutory") and guardianship : Under 16 Supervision Guardianship

16 years and over

Total

17,94°

58,550

76,490

221

2,570

2,791 79,281

2. Number o f mental defectives receiving occupation and training:

A t centers A t home

Under 16

16 years and over

Total

8,055

4,317

12,372

699

1,108

1,807 14,179

3. Number o f mental defectives suitable for but not receiving occupation and training (at centers or at home) : Under 16

16 years and over

Total

2,973

5,763

8,736

4. Number o f occupation centers (all types)

272

5. Number o f defectives on local authority lists awaiting admission to hospitals: Under 16

16 years and over

Total

Urgent

2,073

1,398

3,471

N o t urgent

1,242

2,196

3,438 6,909

Ambulance Services N u m b e r o f ambulances and cars directly provided by Local Health Authori ties (at 31-3-55)

4,226

N u m b e r o f ambulances and cars provided b y voluntary organizations (in eluding those used only occasionally) (at 31.3.55)

634

Total number o f patients carried during year ended 31.3.55

14,391,762

Total mileage during year ended 31.3.55

99,443,622

7. Central Advisory Machinery Central Health Services Council, including all main professional groups

41 members

Committees o f the Council: (a) Committee on Hospital Supplies (b) Standing Committee on Classification o f Proprietary Preparations

World Insurance Trends

216 Standing Advisory Committees :

(a) Medical (b) Dental (c) Pharmaceutical (d) Ophthalmic (e) Nursing (f) Maternity and Midwifery (g) Mental Health (h) Tuberculosis (i) Cancer and Radiotherapy

The British National Health Service : An American View b y Paul F .

Gemmili*

If I have any qualifications for speaking on the subject that has been assigned me, they are the direct result of the seven months I spent last year in England, Scotland, and Wales, studying the British National Health Service. My purpose in making this study was threefold. First of all, I wanted to get an accurate, fairly detailed picture of the Health Service in operation. Second, I wanted to inquire into some questions that had been raised—in some cases by my fellow-Americans—about the adequacy and efficiency of the service. Third, and finally, I wanted to hear from the British people themselves—and particularly, from general practitioners and patients—how, after eight years of experience with it, they felt about their National Health Service. Just before we sailed for England last year, a friend asked my wife how we were going to spend our time. When told that I was to make a study of the National Health Service, she exclaimed: "Oh, socialized medicine! I hope he isn't for i t ! " My wife gave what I am sure was the perfect answer. " H e isn't making a study for it or against it," she said, "he is making a study of it." That is precisely what I tried to do, and (so far as I am able to judge) succeeded in doing. I think Mark Twain had the right idea about handling certain kinds of controversial issues, if we may believe a story so venerable that the younger members of my audience are unlikely ever to have heard it, and the others will have had ample time to forget it. It runs to the effect that Mark Twain was a guest at a small dinner, in the course of which a discussion arose as to the relative merits of heaven and hell. By and by, one of the ladies turned to him, and said "Mr. Clemens, you haven't given us your opinion. Won't you tell us what you think about the relative merits of heaven and hell ? " "Madam," he replied, "I am silent of necessity. I have friends in both places." Like Mark Twain, I have friends in both places—British friends who praise the Service enthusiastically, and other British friends who criticize it vigorously. Following the lead of Mark Twain, I have no intention of taking sides. M y present task, as I see it, is to try to do a job of accurate reporting; and I shall stick as close as possible to the news columns, and do my best to keep away from the editorial * Professor of Economics, Wharton School of Finance and Commerce, University of Pennsylvania. 217

2i8

World Insurance Trends

page. H a v i n g heard this, y o u w i l l certainly not expect m e to present " a n A m e r i c a n v i e w " o f the British Health Service, in the sense o f m a k i n g an appraisal. W h a t y o u m a y depend u p o n getting is a plain, unvarnished account o f w h a t British doctors and British patients told an A m e r i c a n w h o was trying to learn all he could about their n a t i o n w i d e system o f medical care.

DEVELOPMENT OF NATIONAL HEALTH SERVICE

A t the risk o f touching u p o n o n e or t w o points already dealt w i t h b y D r . M c C a l l u m , I should like to emphasize the fact, w h i c h is n o t t o o w e l l k n o w n in this c o u n t r y , that the N a t i o n a l Health Service is a piece o f social provision w h i c h had its b e g i n n i n g s o m e f o r t y - f i v e years ago, and has been discussed almost continuously ever since; and that the Liberal Party, the L a b o r Party, and the C o n s e r v a t i v e P a r t y h a v e each played a part in its d e v e l o p m e n t . British writers usually date the beginning o f the Service back to 1 9 1 1 , w h e n D a v i d L l o y d G e o r g e , the Liberal Party C h a n c e l l o r o f the Exchequer, m a n a g e d to p u t t h r o u g h Parliament the c o u n t r y ' s first c o m p u l s o r y health insurance bill. Contributions to this scheme w e r e c o m p u l s o r y f o r all w o r k e r s w i t h annual incomes smaller than ¿ 1 6 0 (about $775 at that time), and for all employers. A n insured w o r k e r w a s entitled to " f a m i l y d o c t o r " care f r o m a practitioner o f his o w n choosing, and to free medicine, but n o t to specialist or hospital care ; and a married w o r k e r ' s health insurance did n o t c o v e r a spouse or children. T h e scheme caught o n ; and in 1930, and again in 1938, the British M e d i c a l Association ( w h i c h in 1911 had opposed the L l o y d G e o r g e Bill) urged that health insurance c o v e r a g e be extended to dependents, and that its benefits be expanded to include specialist, ophthalmic, dental, and full maternity care. In February, 1943, the C h u r c h i l l C o a l i t i o n G o v e r n m e n t accepted in principle the " C r a d l e to G r a v e " R e p o r t o f Sir W i l l i a m B e v e r i d g e , w h i c h r e c o m m e n d e d , a m o n g m a n y other things, a N a t i o n a l Health Service w h i c h w o u l d p r o v i d e " f u l l preventive and curative treatm e n t o f e v e r y kind for e v e r y citizen . . . w i t h o u t an e c o n o m i c barrier at any p o i n t to delay recourse to i t . " A year later the Churchill G o v e r n m e n t published, and thus m a d e available for public discussion, an eighty-three-page " W h i t e P a p e r , " describing a detailed but tentative proposal f o r a N a t i o n a l Health Service w h i c h , in the w o r d s o f M r . Churchill himself, w o u l d "insure that e v e r y b o d y in the c o u n t r y , irrespective o f means, age, sex, or occupation, shall have equal opportunities to benefit f r o m the best and most up-to-date medical and allied services available." T h e picture changed s o m e w h a t w h e n , in 1945, the L a b o r Party came into p o w e r , and w i t h it a n e w health scheme (the so-called B e v a n Act) w h i c h , f o r m o r e than a year, was discussed in public and debated in Parliament. W h i l e it was under c o n sideration in Parliament, a leading medical journal, The Lancet,

c o m m e n t e d edi-

torially: " S e l d o m has a Bill been presented after so full a canvass o f those affected,

The British National Health Service: An American View

219

o r so w i d e an exploration o f alternatives." T h e B i l l was passed in 1946 b y a v o t e o f 261 to 113, to g o into effect o n July 5, 1948. Its actual o p e r a t i o n — u n d e r a L a b o r G o v e r n m e n t f r o m 1948 to 1951, and under the Conservatives ever since—has been m a r k e d b y frequent arguments over details. B u t the general principle o f the N a t i o n a l Health S e r v i c e — f r e e access for all to every kind o f medical care—has been accepted b y all political parties in Britain.

SURVEY OF DOCTORS AND PATIENTS

A n d n o w I should like to tell y o u about the answers that doctors, patients, and others in Britain have g i v e n m e in reply to specific questions. T h e i n f o r m a t i o n I shall pass o n to y o u comes, so far as doctors are concerned, from 139 general medical practices, w h i c h (because m a n y are partnerships) include 372 general practitioners w h o p r o v i d e f a m i l y - d o c t o r service for about 850,000 patients. T h e s e practices are w i d e l y distributed a m o n g 48 English, Scotch, and W e l s h cities, t o w n s , and v i l l a g e s — a w i d e variety o f areas w h i c h include industrial, c o m m e r c i a l , residential, university, resort, and other types o f communities. T h e average n u m b e r o f patients per doctor in these practices is 2,283 w h i c h happens to be almost identical w i t h the average f o r Britain as a w h o l e . These doctors w e r e requested t o answer thirty-one questions, and cooperated most generously. T h e six hundred participating patients, w h o also t o o k part quite w i l l i n g l y and answered nearly all o f the t w e n t y questions put to them, are w i d e l y distributed geographically, occupationally, and economically, and stretch o v e r ten i n c o m e brackets w h i c h run f r o m a " l o w " o f " u n d e r ^ 2 5 0 " ($700) to a " h i g h " o f " o v e r ,£3,500" ($9,800) a year. DOCTOR WORK LOADS

S o m e o f the v i e w s o n the N a t i o n a l Health Service that h a v e been expressed in b o t h Britain and the U n i t e d States h a v e stated quite bluntly that the general p r a c titioners in the Service w e r e leading a pretty miserable existence because o f o v e r w o r k — t h a t the Ministry o f Health had g i v e n t h e m an exceedingly h e a v y l o a d o f " p a p e r w o r k " ; that their patients (because the service w a s free) kept t h e m b u s y attending to the most trivial ailments ; that, in general, the doctors had so m a n y patients they c o u l d n o t possibly g i v e t h e m proper care, and so on. W h a t do the doctors themselves h a v e to say about these charges o f o v e r w o r k ? H o w serious, for example, is the p r o b l e m o f paper w o r k , w h i c h includes k e e p i n g medical records o f each patient; issuing medical certificates o f m a n y kinds; and, indeed, handling any or all o f the forty-three " f o r m s in general use b y d o c t o r s , " the m e r e listing o f w h i c h fills t w o pages o f the General Practitioners' Handbook ? T h e fact is that some o f these f o r m s are used often, others seldom, and still others almost never. T o m y question: " D o y o u find the v o l u m e o f 'paper w o r k ' v e r y

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b u r d e n s o m e ? " o n l y 39 per cent o f m y doctors said Yes, w h i l e the other 61 per cent said No. S o m e doctors volunteered the i n f o r m a t i o n , w h i c h w a s later w i d e l y c o n f i r m e d b y others, that the increase in certain kinds o f paper w o r k has been largely, i f n o t f u l l y , offset b y the almost total disappearance o f o n e especially unpleasant t y p e — s e n d i n g o u t bills f o r services rendered to private patients. T o d a y , because o f the N a t i o n a l Health Service, such patients c o m p r i s e less than 5 per cent o f the population. It should be n o t e d that the trend t o w a r d general-practitioner partnerships, w h i c h has been apparent since the start o f the Service in 1948, has helped to lessen the burdensomeness o f paper w o r k . A partnership o f t w o o r m o r e doctors is often able t o a f f o r d secretarial help, a n d thus is relieved o f m u c h o f the handling o f medical records and o t h e r office chores w h i c h are p e r f o r m e d personally b y m a n y o f the single-handed practitioners, as the British call t h e m .

TREATING MINOR ILLS

T h e r e is fairly general a g r e e m e n t a m o n g British general practitioners

that

patients d o s o m e t i m e s m a k e nuisances o f themselves. ( A m e r i c a n doctors m a y h a v e a similar feeling a b o u t their patients, b u t in this c o u n t r y the patients are at least p a y i n g f o r the privilege.) In this c o n n e c t i o n , I asked the British doctors this question: " D o patients o f t e n , occasionally, o r almost n e v e r take up y o u r time w i t h v e r y m i n o r a i l m e n t s ? " H e r e are their answers: 49 per cent said often; 30 per cent, occasionally; 21 per cent, almost never. F r o m these replies, it w o u l d seem that f o u r fifths o f these doctors feel that part o f their time is b e i n g spent o n patients w h o need little or n o medical treatment. H a v i n g d u l y r e c o r d e d each doctor's answer, I frequently pursued the matter a little further, a s k i n g : " W h a t d o y o u consider a v e r y m i n o r a i l m e n t ? " T h e w i d e variety o f reactions to this q u e r y suggests the i m p r o b a b i l i t y o f b e i n g able to arrive at a w o r k a b l e definition w h i c h w o u l d enable the l a y m a n to k n o w , in the absence o f considerable pain, w h e t h e r or n o t his c o n d i t i o n warranted a visit to or f r o m his d o c t o r . Several doctors argued s t r o n g l y that it is a doctor's j o b — a n d n o t his p a t i e n t ' s — t o decide w h e t h e r there is n e e d for treatment, and that patients should be e n c o u r a g e d t o seek medical a d v i c e f r e e l y . O n e d o c t o r put it this w a y : " A patient should see his d o c t o r w h e n e v e r he feels at all b e l o w par. I f he doesn't, he w i l l be w o r r i e d

about

his condition.

What

many

patients need most o f all is

reassurance." T h o u g h v e r y frequent office visits are c o m m o n l y regarded as a nuisance, especially w h e n t h e y t u m o u t to b e unnecessary in the doctor's j u d g m e n t , t h e y are not always rated b y h i m as " u n p r o d u c t i v e l a b o r . " " D o y o u t h i n k , " I asked m y doctors, " t h a t requests f o r medical attention f o r v e r y m i n o r ailments lead often, occasionally, o r almost never t o the p r e v e n t i o n o f serious ailments or to their detection w h i l e

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still in their early stages?" T h e answers w e r e : often, 11 per cent; occasionally, 60 per cent; almost never, 29 per cent. These replies are particularly interesting when considered side b y side with the answers to the previous question. For against the g l o o m y conclusion reached b y most o f these practitioners, that some o f their time is taken up by patients with very minor ailments, can be set the countervailing consideration that ready access to medical service sometimes leads to the prevention or early detection o f serious ailments.

NUMBER OF PATIENTS

A r e British doctors overwhelmed by having too many patients to look after ? I decided to ask the doctors themselves. Those w h o took part in m y survey have an average o f 2,283 patients each. Fifty-three (53) per cent o f them have fewer than this average, and 47 per cent have more. A very f e w have m a x i m u m lists o f 3,500 patients. Most o f these doctors have at least t w o , and often three, office-hours a day. T h o u g h an office-hour is nominally 60 minutes, it sometimes—and in the winter very often—runs to 120 minutes or m o r e ; and sandwiched in between these office sessions are visits to the homes o f house-bound patients. British general practitioners are also subject to emergency calls at any time. T o these busy doctors I put the following question: " W i t h your present list o f patients, do y o u find it reasonably easy, or difficult, or almost impossible to give them what y o u regard as adequate medical care?" T h e answers m a y surprise y o u , as indeed they surprised me, for 58.8 per cent said they found it reasonably easy, 37.8 per cent found it difficult, and only 3.4 per cent reported that it was almost impossible for them to do an adequate j o b . In about t w o thirds o f these returns, the report "reasonably easy" came f r o m doctors with fewer than the average number o f patients, and the answer "difficult" or "almost impossible" f r o m those having more than the average—as one might perhaps expect to be the case. B u t 13 per cent o f the doctors w h o answered "difficult" or "almost impossible" had fewer than the average, and in t w o instances fewer than a thousand patients; while 18^ per cent o f those w h o had more than the average, and often the m a x i m u m or near-maximum number o f patients, replied that it was "reasonably easy" to give them adequate medical care.

WAITING FOR SERVICE

T h e problem o f " l o n g waits" is understandably a matter o f special concern to patients. W a i t i n g o f any kind is likely to be tedious business, and waiting for medical service is no exception to the general rule. T h o u g h medical attention is not always sought promptly, it is a type o f service which, once it has definitely been decided upon, is usually wanted without delay. Waiting in doctor's offices

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a n d in out-patient departments o f hospitals is an old story in Britain, but it increased e n o r m o u s l y w i t h the greatly expended d e m a n d that f o l l o w e d the introduction o f n a t i o n w i d e medical provision in 1948, and m u c h has been written and spoken (especially b y persons unfriendly to the Service) about the interminably l o n g waits t o w h i c h the Health Service patients are said to be subjected. S o m e o f these waits are indeed l o n g , b u t some are quite short, as I can testify from

considerable experience. I think it h i g h l y probable that in 1956 I did m o r e

w a i t i n g to get general-practitioner attention than any other person in Britain. T h e attention that I w a n t e d w a s interviews w i t h the doctors, w h o granted t h e m w i l l i n g l y a n d generously. I discovered that the simplest w a y to meet a doctor was to w a l k into his w a i t i n g - r o o m , a n o n y m o u s l y and unannounced, and j o i n the patients w h o , true t o the g o o d old British custom o f " q u e u i n g u p , " w e r e waiting their turns t o enter the consulting-room. B y w a i v i n g m y turn and w a i t i n g until the last o f the b o n a fide patients had g o n e in, I w a s able t o talk t o the doctor at once or to arrange f o r a n interview at his c o n v e n i e n c e ; and m e a n w h i l e I could note approximately h o w l o n g each patient had had t o wait, and h o w m u c h time each was g i v e n b y the doctor. F r o m these " l o n g w a i t s " o f m i n e — o f t e n repeated three or f o u r times a day f o r m a n y w e e k s — I learned that the time a patient spends in the doctor's w a i t i n g - r o o m is l o n g or short, depending u p o n such things as the h o u r at w h i c h he arrives ; the nature o f the ailments o f the persons w h o precede h i m , f o r this w i l l affect the a m o u n t o f the doctor's time they take u p ; and the time o f year, f o r waits are usually m u c h longer in the busy w i n t e r season than in the relatively slack s u m m e r . U n f o r t u n a t e l y , m u c h o f this information p r o v e d to be interesting rather than i m portant, f o r it did n o t lend itself to useful generalization. T h e question w h i c h I finally asked the patients I i n t e r v i e w e d w a s this : " H o w often, in the past year or so, h a v e y o u had to w a i t as l o n g as an h o u r and a half in the doctor's office b e f o r e g e t t i n g attention ?" Six (6) per cent replied that they usually had to w a i t that length o f t i m e ; 15 per cent said occasionally, 79 per cent, almost never. A similar question, but o n e relating t o waits in hospital out-patient departments, asked h o w often these patients had had t o w a i t m o r e than 2 hours before seeing the doctor w i t h w h o m they had an appointment. Thirteen (13) per cent answered that they usually had to w a i t longer than 2 hours; 25 per cent said occasionally, 62 per cent, almost never. AVAILABILITY OF HOSPITAL SPACE

T h o u g h m o r e than h a l f o f the total annual expenditure f o r the N a t i o n a l Health Service consists o f hospital and specialist costs, there has always been, and c o n tinues to be, a shortage o f hospital service, b o t h in-patient and out-patient, and a l o n g list o f applicants w a i t i n g for appointments. For despite the almost revolutionary i m p r o v e m e n t s that w e r e m a d e in hospital plant and staff during and after W o r l d

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W a r II, the unprecedented demand for hospital service which accompanied the adoption of the National Health Service in 1948 was one that was bound to outstrip supply for years to come. The latest published figures show that on December 31, 1955, there were in Britain 453,000 persons on hospital in-patient and out-patient waiting-lists. However, waiting-list figures show a decrease from a 1950 peak of 530,000 to the 1955 total of 453,000—a slow but steady decline, year by year, except for 1953 when there was an unexplained increase over the preceding year. Among the people on waiting-lists are many kinds of illnesses, and many degrees of urgency. Faced with a shortage of hospital facilities, the British follow the principle of "first things first," and thus presumably insure that patients whose lives might be endangered by a delay in treatment are cared for ahead of those whose ailments are of a less serious nature. The testimony of general practitioners seems to indicate that, in general, they can get hospital service for their patients when it is urgently needed. I asked the doctors: "When you refer patients to hospital for examination or bed-occupancy, do you have difficulty getting them admitted promptly?" Seventy-three and one-half (73.5) per cent said No. The other 26.5 per cent said Yes, frequently adding "unless very urgent," and explaining that their greatest difficulty was gaining admission for chronic invalids and for the aged, who are likely to be long-term inmates once they get in. The notion—which had some currency in the early years of the Service—that "patients who genuinely require hospital treatment are often kept out of hospital because the beds are occupied by persons with minor ailments" found support from only 2.5 per cent of the doctors questioned; 20 per cent said that this occurs occasionally ; according to 77 per cent of the respondents, it almost never happens. To the short but important question: "Would it be correct to say that an emergency case can always get into hospital prompdy ?" the answer from 98 per cent o f the doctors was an unqualified Yes.

DOCTOR COMPENSATION

The question of doctors' pay has been much discussed in Britain during the past year or so. The general practitioner has a "panel" (or list) of patients, who have chosen him as their personal or family doctor. His chief source of income is a specified payment of so much a year—called a "capitation" fee—which he receives for each of his Usted patients. (This fee is $2.38 a year for each of a doctor's first five hundred patients, $3.78 a year for each of the next thousand patients, and then back to $2.38 each for the remainder.) A general practitioner with the average number of patients (about 2,300) will have a gross annual income of £2,455, which is equivalent to $6,874 a t the current rate o f exchange. A doctor with a panel of the maximum size that is permitted (3,500 patients) receives £ 3 , 4 7 5 ($9.73°) in capitation fees. After subtracting the

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necessary costs o f running his practice (about one third o f the gross income), the average-panel doctor w i l l have left a net i n c o m e (before taxes) o f .£1,637 ( $4,584), and the full-panel practitioner a p p r o x i m a t e l y -£2,317 ( $6,488). [Because consumer prices are l o w e r in Britain than in the U n i t e d States, these dollar-incomes must b e raised about 25 per cent i f they are to reflect British purchasing p o w e r accurately. For example, an English general practitioner w i t h a net i n c o m e o f £ 2 , 3 1 7 ( $6,488 at the current rate o f exchange) can b u y w i t h this a m o u n t o f m o n e y a standard o f living comparable to that purchasable w i t h $8,110 in the U n i t e d States.] D o c t o r s o n the staffs o f British hospitals differ w i d e l y in pay, w i t h incomes running as h i g h as £5,300(514,840) a year f o r a small n u m b e r o f top-level " m e d i c a l consultants," and as l o w as 1,100 ($3,080)

for first-year "senior registrars."

T h e m a x i m u m basic salary f o r full-time consultants is £ 3 , 1 0 0 ( $8,680) a y e a r ; b u t the p a y m e n t o f "distinction a w a r d s " in recognition o f special merit brings an additional $1,400 a year to 20 per cent, $4,200 to 10 per cent, and $7,000 to 4 per cent o f the total n u m b e r o f consultants. R a i s i n g these dollar figures b y one fourth to m a k e allowance for Britain's l o w e r consumer prices, w e see the possibility o f 34 per cent o f the m o r e fortunate British consultants getting salaries equivalent to American incomes o f $12,600, $15,400, o r $18,550. General practitioners and part-time consultants m a y also accept private patients, and m a y supplement their incomes in other w a y s that do n o t interfere w i t h g i v i n g proper service to their N a t i o n a l Health Service patients. H o w e v e r , m y survey s h o w e d that about f o u r fifths o f the general practitioners w e r e getting m o r e than 90 per cent o f their i n c o m e f r o m Health Service practice, and that this pay w a s m a d e up o v e r w h e l m i n g l y o f capitation fees. In 1955, the latest year for w h i c h detailed British i n c o m e data are available, general practitioners w i t h the average n u m b e r o f patients w e r e in the highest i\ per cent o f British income-getters. T h o s e w i t h the maximum o f 3,500 patients w e r e in the highest

per cent, as w e r e also all full-time consultants o f at least three

years' standing. T h o u g h these figures m i g h t seem to indicate that doctors as a class are d o i n g relatively w e l l , the fact remains that they have made frequent requests for increases, but have had n o boost in pay in the past six years. T h e y have recently been pressing their d e m a n d in unusually v i g o r o u s language, insisting that the much-cited "Spens R e p o r t s " promised t h e m m o n e y incomes that w o u l d keep pace w i t h changes in the cost o f living. A c c o r d i n g to the British Medical Journal: " D o c t o r s are united in considering that the G o v e r n m e n t , b y its apparent repudiation o f the Spens R e p o r t s , has b r o k e n faith w i t h the profession." T h e g o v e r n ment's stand has been that " i n the present circumstances (the serious inflationary threat that the c o u n t r y is facing), it w o u l d n o t be right to g i v e consideration to a claim for a general increase in medical remuneration." T h e g o v e r n m e n t has set up a R o y a l C o m m i s s i o n to study the w h o l e situation, granted an interim p a y increase o f 10 per cent to j u n i o r grades o f hospital doctors and dentists, and implied

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that there w o u l d be interim increases for others as well. But there were no deafeni n g cheers o f approval f r o m the doctors, by w h o m these actions were construed as tactics o f delay. It is all v e r y confusing, especially to foreigners w h o may not have followed closely the lively give-and-take that has marked negotiations between the Ministry o f Health and the medical profession in the past dozen years. Americans reading in their daily papers, several months ago, that the British Medical Association was making plans for a "selective withdrawal" f r o m the Service in October, 1957, might have supposed that the very survival o f the National Health Service was in danger. H o w e v e r , The New York Times reported o n M a y 2 that the British Medical Association had voted " t o defer indefinitely a decision on a plan for the progressive withdrawal o f general practitioners f r o m the National Health Service" ; but added that " a spokesman for the Medical Association's council made it plain that the withdrawal plan w o u l d be revived i f the physicians w e r e not satisfied w i t h the findings o f the R o y a l Commission appointed to inquire into the dispute." Predictions are always risky, but it is a fairly safe guess that withdrawal f r o m the Service is not in the cards. A m o n g the reasons for regarding a concerted (or even "selective") withdrawal b y the doctors as unlikely are the difficulty o f practising medicine outside the Service, the possibility o f endangering the doctors' claims to valuable annuity rights and other highly prized benefits w h i c h are payable at retirement or death, and the widespread antagonism that withdrawal w o u l d arouse a m o n g the British people, w i t h w h o m the Health Service is exceedingly popular, and w h o (as The Lancet, the medical journal, points out) " d o not readily understand h o w doctors justify an average ' w a g e claim' for an additional ¿10

a week, w h i c h is more than

many o f them earn altogether." B u t no doubt the strongest o f all deterrents to withdrawal w o u l d be the doctors' devotion to their calling. British doctors m a y be o v e r w o r k e d and underpaid, as their representatives claim they are ; but they believe in the importance o f their j o b , and state w i t h pride and a high degree o f accord that under the National Health Service the medical needs o f Britain as a w h o l e are being better met than ever before. T h e dispute over pay may be sharp and even bitter, but surely not so explosive as to shatter or severely shake the great medical tradition that the patients' needs always come first. " W h a t e v e r is decided," concluded the British Medical Journal in one o f its spirited attacks upon the Ministry o f Health, "the public m a y be assured—if such assurance is really necessary—that the sick and the suffering will be cared for as they have always been." LIKES AND DISLIKES OF PATIENTS A N D DOCTORS

W h a t do the doctors w h o provide medical treatment, and the patients w h o receive i t — w h a t do they like, and w h a t do they dislike, about the National Health

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Service ? Here is a quick and admittedly inadequate sketch o f patient and doctor reactions to specific aspects o f the Service, beginning with some o f the things the patients do not like. ι . In general, they dislike waiting. W a i t i n g in doctors' offices, though protested mildly, is usually taken pretty m u c h in stride; but patients often speak with fervor about long waits they have sometimes had to undergo as hospital out-patients. 2. T h e y dislike the small amount o f time given them in the consulting-rooms o f some doctors—though many patients state emphatically that their doctors g i v e all the time that is needed. 3. A relatively small number o f patients express profound dislike o f the dental charges (maximum, $2.80 for "conservative" w o r k , $12 for dentures), the charge for spectacles (about $4.20 a pair), and some even o f the prescription charge (14 cents per item). 4. T h e y dislike having foreigners, w h i l e in Britain, get medical care free. (According to competent authorities, abuse o f this privilege b y foreigners though quite c o m m o n in the early days o f the Service, is no longer widespread.) Balanced against these dislikes are things w h i c h the patients say they like v e r y much: 1. T h e fact that medical provision is n o w a matter of right and n o t charity, 2. T h e k n o w l e d g e that medical care o f high quality, formerly available only for the well-to-do, is n o w accessible to persons in even the lowest income groups. 3. Confidence that the cost o f a catastrophic illness will not w r e c k a family's financial

program.

4. T h e comprehensiveness o f the Service, and its nationwide coverage. T h e dislikes o f general practitioners include : ι . T h e doctor's inability to sell his practice, w h i c h is no longer his personal property. (The compensation provided b y the government for this loss o f the right to sell the " g o o d w i l l " in a practice, is regarded by many practitioners as inadequate.) 2. T h e doctors dislike being unable to m o v e readily to another area. (In the interests o f having a better distribution o f practitioners throughout the country, doctors are prevented f r o m m o v i n g their practices into " o v e r - d o c t o r e d " areas, but are offered financial inducements to g o to "under-doctored" parts o f the country.) 3. A s has been noted, the doctors are v e r y unhappy that their pay has not kept pace w i t h increases in the cost o f living, and feel that the government has n o t lived up to its promises in this respect. 4. T h e doctors dislike the requirement that private patients must pay for their medicine. Their objection is t w o f o l d : first, they feel that this discrimination

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against private patients just isn't cricket; second, they regard it as a device designed to bring about the gradual but complete extinction o f private practice in Britain. There are, on the other hand, many things about the Service which the doctors regard as definite gains : ι . T h e y like the ability they n o w have to prescribe the best medicines (regardless o f cost) for even the poorest patient, knowing that a lack o f funds will not prevent the prescription f r o m being filled. 2. T h e y like the privilege o f visiting their patients as often as they think desirable, without being suspected o f making frequent visits for financial reasons. 3. T h e y like the annuity scheme which puts 6 per cent o f their annual net inc o m e (together w i t h 8 per cent provided by the government) into a fund that provides, upon retirement, a life annuity. 4. T h e y like very much the great reduction that has taken place in "out o f bed" night calls, w h i c h (according to the doctors) became daytime or early-evening calls w h e n the introduction o f the Health Service made it possible to have these home visits without charge. 5. A s I have said, the doctors are happy to be relieved o f the need to bill their patients, and to be freed also from bad debts; and they like (in a profession that is highly seasonal) the stability that is provided b y having four equal payments o f income per year. 6. Finally, the doctors take satisfaction in the fact—to which I shall refer again —that, in their opinion, the medical needs o f Britain as a whole are n o w being better met than ever before.

EVALUATION OF NATIONAL HEALTH SERVICE

I turn n o w from doctor-patient views on specific aspects o f the Service to appraisals o f a broader nature. " F r o m your personal experience," I asked the patients, " d o y o u consider the N.H.S. service better or worse than the service y o u g o t before 1948, or about the same ?" Thirty-six (36) per cent said better ; 13 per cent, worse; 51 per cent, about the same. T o the very general question: " D o y o u feel that y o u are n o w getting satisfactory service o f the several kinds provided by the Health Service?" 91 per cent o f the patients answered Yes; 9 per cent, No. T h e " h o m e services" supplied by the N.H.S.—specialist, midwife, home visitor, h o m e nurse, and domestic help—have proved popular. Slightly more than one half o f the patients in m y survey had used one or more o f these services, and 98 per cent o f the users pronounced them "quite satisfactory." H o w well the seriously ill are cared for is a matter o f grave concern to patients and their families. This fact led to the following question: " H a v e y o u or a member

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World Insurance Trends

o f y o u r household ever had, under N . H . S . , w h a t the doctor clearly regarded as a serious illness?" O n e h a l f o f the answers w e r e Yes; and the illnesses that w e r e n a m e d included p n e u m o n i a , thrombosis, ulcers, punctured lung, heart ailments, poliomyelitis, diabetes, cancer, and a host o f others. M a n y o f these patients w e r e treated at h o m e , others w e r e in hospital f r o m a f e w days t o a year or m o r e . W h a t I especially w a n t e d to k n o w was h o w these patients appraised the care t h e y r e c e i v e d — w h e t h e r they t h o u g h t it excellent, g o o d , fair, o r p o o r .

Seventy-six

(76) per cent reported that t h e y had had excellent care; 18.3 per cent said good·, 2.5 per cent, fair; 2.3 per cent, poor. In general, these patients w e r e loud in their praise o f the hospitals, doctors, and nurses. Seeking a professional appraisal o f present-day British medical care, I asked the general practitioners this question: " U n d e r N . H . S . , are the medical needs o f the c o u n t r y as a w h o l e b e i n g better met, less w e l l met, or cared for 'about the s a m e ' as before N . H . S . ? " T h e answers w e r e : better met, 87 per cent ; less well met, 3 per cent ; about the same, 10 per cent. I also put to the doctors a question a b o u t the p e r m a n e n c e o f the Service: " D o y o u regard the N . H . S . , o r something o f substantially the same nature, as a permanent British institution—that is, is it here to s t a y ? " N i n e t y - e i g h t and one-half (98.5) per cent said Yes; 1.5 per cent said No. W h e n this question w a s put t o m e m b e r s o f Parliament (Conservative and Labor), to journalists, t o university professors, to business men, and others outside the field o f medicine, the answer w a s again almost unanimously Yes. I was n o t the o n l y o n e in Britain last year w h o was asking doctors and patients about the Health Service. I think y o u m a y be interested in t w o questions asked in a nationwide poll taken b y the British Institute o f Public O p i n i o n (the Gallup Poll) in June, 1956. T h e first, directed t o general practitioners, read: " S u p p o s e y o u h a d a chance to g o back and v o t e o n w h e t h e r the N . H . S . should be started or n o t . H o w w o u l d y o u v o t e — i n f a v o r o f starting it, or against starting it ?" T h e answers : In favor, 67 per cent; against, 31 per cent; undecided, 2 per cent. T h e second G a l l u p question was f o r the patients : " A s far as y o u personally are concerned, h o w w o u l d y o u rate N . H . S . — f a v o r a b l y or unfavorably ? " T h e answers: Favorally, 89 per c e n t ; unfavorably, 4 per c e n t ; undecided, 7 per cent. I f o u n d in Britain n o tendency to claim f o r the National Health Service a n y thing approaching perfection. I d o n o t recall talking w i t h a n y o n e w h o did n o t mention the need for m o r e dentists and nurses, m o r e general practitioners w i t h smaller "panels" o f patients, m o r e adequate health provision for the aged and m e n t ally ill, m o r e capital investment in hospitals, m o r e emphasis u p o n p r e v e n t i v e medicine, better integration o f all parts o f the Service, o r some other s h o r t c o m i n g w h i c h I was told must one d a y be taken care of. O n the w h o l e , h o w e v e r , the British attitude seems to be o n e o f restrained optimism, as is indicated b y this observation f r o m an administrative officer o f a L o n d o n hospital: " W e k n o w all t o o w e l l the m a n y problems w e must s o l v e , " he said, " b u t w e k n o w t o o that

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w e have something worthwhile, and w e shall never stop trying to make the Service better until w e have finally w o n through." I close m y report o f British opinion on the National Health Service with a final w o r d o f appraisal f r o m a Conservative member o f Parliament, w h o said to me : " W e do not have a first-class, but only a second-class medical service. H o w e v e r , before 1948 it was only fourth-class. It has been improving ever since, and b y and by w e shall have a Health Service that is truly first-class."

The German Experience with Health Insurance by Oscar W e i g e r t *

It seems very fitting that German experience with Health Insurance is on the agenda o f this meeting. German Social Health Insurance celebrates this year the same anniversary as this school does. Seventy-five years ago, in April, 1882, the Imperial Government submitted to the German Reichstag a bill providing nationwide sickness insurance for selected groups of wage and salary earners, as part of Bismarck's revolutionary program of compulsory social insurance. Throughout the whole civilized world it was the first bill o f this sort ever proposed. Its enactment one year later had a decisive influence upon the acceptance of health insurance in many other countries, although frequently in forms that differed from the German approach. During these seventy-five years, Germany's experience with health insurance was primarily her experience with this public program, with its expansion, its changes—of which there have been many—and its survival in spite of two world wars ending in defeat and followed by inflation, and of four profound changes of the political regime. In the divided Germany o f today, the program continues to be applied in the Western half of the Reich, the Federal Republic o f Germany, where the great majority of the German people reside ; and with some modifications also in West Berlin—while in the Soviet Zone of Germany and in East Berlin health insurance has been absorbed by a unified system of social insurance that is shaped in all details after the Russian model. Western Germany has also preserved the century-old tradition of private health insurance which played an important role in paving the way for social insurance. Private health insurance gained in strength in the 1920's when the German middle class lost most of their savings in the postwar inflation and turned to private insurance for protection. It began to be used also by employees who wanted to supplement the benefits of the public program. The growth of private health insurance was interrupted by World W a r II, but resumed under the Federal Republic. In 1956, almost 11 million policies were administered by eighty-one carriers which included stock companies as well as mutual associations. The income * Special Assistant to the Commissioner o f Labor Statistics, U.S. Department o f Labor.

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from premiums was 800 million German mark, 1 and the total payments to policyholders were 580 million. In spite of its growth, leaders of private health insurance seem seriously worried about a small but persistent decline of their most important branch—the insurance for the cost of medical care—the result, in their opinion, of the continuous expansion of social health insurance.

EXPANSION OF SOCIAL HEALTH INSURANCE

Let me give you some statistics which illustrate this expansion of social health insurance. In 1885, its first year of operation, this program had a membership of 4.2 million workers and employees, equal to 9 per cent of the population. B y 1930 this membership reached its peak with 22 million. A t the beginning o f 1955, the membership was close to 18 million persons, equal to more than 35 per cent of the West German population. In addition, medical care was assured to more than 6 million recipients o f old-age and invalidity pensions, and to more than 16 million family members. Thus, at present, social health insurance takes care of more than 40 million people, equal to almost 80 per cent of the West German population. The total income of the program in its first active year was 65 million mark, the total expenditures 55 million. These figures compare with close to 4.4 billion German mark in 1955 on both sides of the ledger. Per capita of an insured person, the income rose from close to 14 mark in 1885 to 211 German mark in 1955, the expenditures from 12 mark to 205 German mark. This increase in income and expenditures was not a continuous process. It was interrupted, or even reversed, by all the emergencies which were part o f German history since 1914; but there was a comeback each time. The financial growth of the program has been particularly steep since the West German currency reform of 1948. Since then, expenditures grew by 128 per cent, although the membership rose only 23 per cent, and although the money value declined only slightly during these years. The recent rise, its potential causes, and the means by which it might be stopped—or at least slowed down—are much discussed at present in West Germany. Before I say some words about this discussion, let me summarize for you the main features of the program.

FEATURES OF PROGRAM

ι . Health Insurance continues as a separate branch of the German social insurance system. A merger of its branches, or of at least of some of them, has frequently been demanded. But these demands have not succeeded for a variety of reasons, 1 T h e ratio between the German mark (Deutsche mark = D M , the currency o f the Federal Republic) and the U . S . dollar is 4:2. The same ratio was set between the mark (the German currency until the fall of 1923) and the dollar. The purchasing power of the present German mark is substantially lower than that o f the old mark, but their ratio cannot be expressed in a single figure.

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and w i l l n o t easily succeed in the future. M e a n w h i l e , the various branches have been m o r e closely coordinated, gaps have been closed w h i c h existed b e t w e e n them, a n d the judiciary and the agencies o f g o v e r n m e n t control h a v e been unified. Still, each b r a n c h — a n d so also Health Insurance—continues to c o v e r specific risks, has its o w n carriers and its o w n financial scheme, and is subject to specific legal standards f o r its benefits and procedures. 2.

A t the same time, the Health Insurance p r o g r a m has maintained its insurance

character. It is financed n o t out o f general taxes but b y contributions paid in equal rates b y the insured w o r k e r s and their e m p l o y e r s — w i t h the exception o f the social security pensioners for w h o m the g o v e r n m e n t pays ; the p r o g r a m aims at balanced budgets o f the w h o l e scheme and o f the individual carriers ; and the insured person has a claim f o r benefits w i t h o u t any test o f need. It is a case o f social insurance, h o w e v e r . T h e p r o g r a m appeals t o solidarity rather than to self-help, although it tries t o c o m b i n e b o t h these ideologies. B a d risks cannot be rejected, n o r can insured p e o p l e be graduated according to their individual risk. 3. Insurance under the G e r m a n p r o g r a m is n o t o n l y c o m p u l s o r y , it is automatic f o r practically all persons w h o w o r k under an e m p l o y m e n t contract. This includes white-collar workers, f a r m labor, and domestic employees, but n o t g o v e r n m e n t officials. A n i n c o m e l i m i t — a t present 6,000 G e r m a n mark annually—exists f o r white-collar w o r k e r s o n l y , and for some other small groups. T h e s e workers can, h o w e v e r , choose to continue the insurance i f they pass the i n c o m e limit, and so can persons w h o g i v e up insured e m p l o y m e n t . M e m b e r s o f some e x e m p t e d groups, such as public officials and small entrepreneurs can also, under certain conditions, j o i n voluntarily. A l t o g e t h e r , something like 15 per cent o f the insured persons are under the p r o g r a m b y their o w n volition, h a l f o f t h e m self-employed, and o n e third g o v e r n m e n t officials and white-collar w o r k e r s . T h e admission o f voluntary m e m b e r s and the insurance o f millions o f a g e d or invalid pensioners b e l o n g to the most controversial features o f the program. 4. T h e p r i m a r y risk c o v e r e d is sickness, conceived as a t e m p o r a r y disturbance o f health that requires medical attention, or compels the insured person to suspend his w o r k , or has b o t h these effects. If the illness results f r o m an e m p l o y m e n t i n j u r y , health and accident insurance deal j o i n t l y w i t h this occurrence.

Other

risks c o v e r e d are d e a t h — f o r w h a t e v e r r e a s o n — a n d maternity. Illness, death, and maternity o f f a m i l y m e m b e r s are also insured. T h e r e are n o c o m p l e t e statistics available about the incidence o f sickness a m o n g the insured persons. T h e available data concern o n l y cases o f sickness that produced incapacity to w o r k or required hospitalization; they do n o t report the lighter cases w h i c h require o n l y medical treatment, called "bagatelle cases" in G e r m a n y . T h e n u m b e r o f days w i t h incapacity to w o r k or spent in hospitals was 589 per 100 insured persons in 1885, and 985 in 1954. T h e frequency o f such m o r e serious

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illnesses has risen f r o m 44 cases per 100 persons in 1949 to 48 in 1954, with an average duration o f 24 days per case. B u t it is generally assumed that the "bagatelle cases" have g r o w n much more in numbers than the serious cases. 5. T h e organization of German Health Insurance is one o f its most striking aspects. The program is carried out not by the government or some other nationwide institution, but under government control by slightly more than 2,000 sick funds (Krankenkassen). These funds have legal personality and a high degree o f autonomy. Provisions o f their by-laws define, in the legal limits, the level o f benefits and contributions. T h e policies o f the funds are determined b y their assembly, composed in equal numbers b y elected representatives o f the insured persons and their employers. T h e decisions of the assembly are carried out b y an elected bipartite board which also appoints the manager and the employees o f the fund. T h e funds belong to different categories which have been established b y the law not in accordance with actuarial considerations, but primarily f o r historical, political, and administrative reasons. Most insured persons are members o f local funds, set up by cities or counties f o r all workers in their area w h o are not assigned b y the l a w to a special category o f funds. T o the special categories belong funds f o r individual establishments o f at least medium size, for handicraft guilds—which still mean something in G e r m a n y — f o r miners and f o r seamen. Membership with all these funds follows automatically f r o m a person's j o b or occupation. H o w e v e r , some categories o f insured persons—primarily white-collar workers—may j o i n so-called substitute funds (Ersatzkassen), former private insurance associations which have been absorbed b y the public program but still operate in a manner similar to private insurance. In 1954 the substitute funds had 5 million members. It has been a persistent policy to reduce the number o f funds ; they n o w total 2,000 compared with about 20,000 during the first years o f the program. T h e average number o f persons insured with a single fund has, at the same time, g r o w n f r o m about 230 in 1855 to almost 8,600 in 1954. Half o f the funds have n o more than 1,000 members, but they cover together only 2.5 per cent o f allinsured persons, while one third o f these persons are members o f fifteen so-called " m a m m o t h funds," each with a membership o f more than 100,000. It is part of the basic philosophy o f the German program that the insured workers and their employers have a decisive voice in the administration o f the funds. T h e Nazis suspended this self-government, but it has been restored b y recent legislation. There are, however, widespread complaints about the bureaucratization of m a n y funds as the result of their size, and about the decline o f mutual control by the membership, f o r the same reason. The multiformity of funds has also frequently been attacked as contrary to sound actuarial and administrative principles, while others see in this diversity a useful factor o f competition. 6.

F r o m its beginning, the benefit scheme of the German program combined

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benefits in cash with benefits in kind. It is still the prevailing opinion that both types belong in a single insurance program. T h e most significant cash benefit is the "sick m o n e y " (Krankengeld), a partial compensation f o r the loss o f earnings, due after three days of incapacity to w o r k , and f o r a regular duration of twenty-six weeks. It is not paid as long as the sick person continues to receive his w a g e or salary. The incapacity to w o r k must be certified by an insurance physician. T h e most important benefit in kind, called "sick care" ( K r a n k e n p f l e g e i n c l u d e s all medical and dental services, medicines and appliances, needed to restore the health o f the insured person or o f his w i f e and children, without limitation in time. Only in exceptional cases can sick care be replaced by a money payment. T h e sick person can be hospitalized if this seems the best w a y to bring him back to health—and if he agrees. All decisions in individual cases about treatment, medication, and hospitalization are made b y the physician, without interference from the fund. In 1954 the benefits in cash amounted to 990 million German mark, while the benefits in kind reached almost 2.6 billion. Per capita o f an insured person, the annual amount spent f o r sick money rose f r o m 5.5 mark in 1885 to 49 D M in 1955. D u r i n g the same period, the annual cost o f sick care and hospitalization for the insured person and his family members rose from less than 5 mark to 1 2 2 D M — almost three times the per-capita expenditures for the money benefits. T h e remuneration o f physicians and dentists is—with more than one billion D M in 1955 — n o w the highest single item in the Health Insurance budget, while in the early years o f the program it did not reach half o f the amount spent f o r money benefits. Legal minimum standards are established f o r most benefits, but higher standards can be set b y the by-laws of the funds. This has been done by many funds, although w i t h great variety in detail, and may be one o f the major causes for the increase o f expenditures. T h e higher level o f sick money is partly explained b y the rise o f wages which are the basis o f its computation, while major reasons for the higher cost o f sick care are the improved remuneration of doctors and dentists, the higher prices of medicines and drugs, the higher fees o f hospitals—a much disputed issue in Western Germany—and the w h o l e development of the medical sciences and techniques which, in many cases, make medical treatment more expensive. It is a much discussed question in Western Germany h o w far the higher costs of Health Insurance as justified b y objective factors, and h o w far they reflect changes in attitude on the part of the insured person and also o f physicians, w h o play such a k e y role in the application o f the program. T h e great majority o f funds are able to finance the increased expenditures out of their income f r o m contributions. In 1954, the typical contribution rate stood between s i per cent and 6 per cent. Higher rates—up to 7 per cent and more—were paid b y a substantial minority o f the insured persons. Although the rates o f contri-

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butions have been rising steadily, the legal maximum contribution rate of 10 per cent of wages was not reached anywhere. 7. This summary of the program cannot be concluded without a few remarks about the relationship in Western Germany between social Health Insurance and physicians. The issue is of vital importance for the 40 million people who receive medical care through Health Insurance; for the whole population because of its implications for the state of public health; for the sick funds that have become more and more concerned about the rising cost of medical care; and for the almost 40,000 German physicians who receive the greater part of their income from their insurance practice and who are continually being urged to find a fair equation between the demands of their patients, their own needs, and the financial capacities of the insurance program. Conflicts must be expected where groups with vital but differing interests are expected to cooperate. Such conflicts were frequent and grave in Germany during the first three decades of this century. At a most critical moment, the associations of sick funds and insurance physicians, which had grown up in the course of the strife, agreed—under some government pressure—on arrangements which, in their essence have subsisted up to the present day. While these associations—which now have official character—are carrying out the arrangements through a whole hierarchy of agreements, joint committees, and arbitration boards, the principles of doctorinsurance cooperation have been anchored in a series of Federal enactments, the latest of which dates of August, 1955. Under the West German scheme, the insurance physician has no formal relationship to an individual sick fund—as in the earlier stages of the program. He is admitted by a regional committee of doctors and fund representatives to insurance practice in a district where the legal ratio for the admission of physicians—at present one doctor for five hundred insured persons—has not yet been reached. The insured people in the district have their free choice among the admitted physicians, and there is no legal limit to the number of patients a physician may accept. The sick fund pays to the association of insurance physicians a total remuneration, based upon the number of persons insured with the fund and their annnal need for medical services. This total amount is distributed by the association among its members according to a scale that considers the kind and amount of services given but is also supposed to assure that a physician does not overextend his practice. The professional activities of the insurance physician are supervised by his association; it is even authorized to use disciplinary measures. Principles for efficient but economic medical care are issued by a Federal Committee, composed of representatives of physicians and sick funds in equal numbers under a neutral chairman. They concern particularly new methods of examination and treatment, the prescription of medicines and drugs, the problems of hospitalization, and the recognition of incapacity to work.

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A n o t h e r agent o f control is the "trusted physician" (Vertrauensarzt), w h o s e p r i m a r y functions are to re-examine, in d o u b t f u l cases, the incapacity to w o r k o f an insured person, and the prescription o f medicines and appliances without, h o w ever, interfering w i t h the medical treatment. T h e "trusted physician" w a s o r i g i n ally an e m p l o y e e o f the sick fund, but was later transferred to the regional institution o f pension insurance t o emphasize his impartial position. Nevertheless, h e continues to be unpopular w i t h practitioners and patients alike. N o one w i l l assume that the dissensions b e t w e e n sick funds and physicians h a v e been negated b y the existing regulations and institutions. M a n y physicians are still c o m p l a i n i n g that the remuneration is n o t adequate, w h i l e representatives o f the sick f u n d s feel that they do n o t h a v e sufficient control o v e r most o f their expenditures under the present arrangements. FUTURE REFORM

T h e s e arrangements are one o f the m a n y subjects that are at present being d e bated in W e s t e r n G e r m a n y , in a widespread public discussion about a r e f o r m o f social insurance in general. A first phase o f this r e f o r m has recently been c o m pleted in the field o f pension insurance. A r e f o r m o f health insurance is scheduled t o f o l l o w . A n y prediction as to the extent and character o f this r e f o r m w o u l d b e premature. T h i s is a h i g h l y political matter, and its treatment w i l l largely depend u p o n the general elections o f n e x t September (1957). F r o m the present state o f the discussion it appears that the organization o f the p r o g r a m w i l l n o t be c h a n g e d — w e a k as it is f r o m an actuarial point o f v i e w . M a j o r changes in coverage, such as a l o w e r i n c o m e limit for white-collar workers or a restriction o f voluntary m e m b e r ship, also do n o t seem probable. Serious attempts w i l l be made to reduce the n u m b e r o f "bagatelle cases," b y shifting part o f the cost o f medicines and d r u g s — a n d perhaps a b o o f the treatment — t o the insured person. It is assumed that the great m a j o r i t y o f present-day w o r k e r s can spend m o r e o f their i n c o m e f o r sick care than the proletarians o f s e v e n t y - f i v e years a g o , and that the reduction o f "bagatelle cases" will n o t o n l y l o w e r the expenditures f o r sick care but also g i v e physicians m o r e time f o r the treatment o f serious illnesses w i t h all the devices o f m o d e r n medicine. Financial relief f o r the insurance p r o g r a m is expected also from a m o v e that is already under w a y to continue the w o r k e r ' s w a g e s during the first w e e k s o f i n capacity to w o r k — a privilege w h i c h already exists f o r white-collar workers. T h i s w o u l d lessen the present pressure upon the insurance physician t o certify such incapacity even in m i n o r or doubtful cases. T w o insights can be f o u n d in most c o m m e n t s o n the G e r m a n p r o g r a m . T h e r e is a g r o w i n g awareness o f the importance o f psychological factors in the causation a n d duration o f illness, and a widespread recognition that a h i g h l y developed p r o g r a m o f health insurance creates o f necessity strong incentives in the insured

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persons to utilize the program. This is not so much a question of simulation—which is considered as not frequent in Germany—but of self-concern or self-indulgence which in some cases may crystallize into neurosis or illness. H o w to handle such cases, without damaging the essential functions o f Health Insurance, is the great unresolved issue in Germany as in so many other countries. In this connection, there is almost universal support for greater emphasis on the prevention of illness. While general preventive measures should be left to other agencies, Health Insurance should embark upon a preventive program in individual cases—based on regular health examinations o f the insured persons and their families and including treatment and cure at a time when illness and incapacity to w o r k are not yet evident. Such a reorientation w o u l d strengthen the positive and constructive aspects o f Social Health Insurance which should not be forgotten over all the criticism o f details.

The Community Association Approach to Health Insurance in the United States by Basil C. MacLean, M . D . *

In the United States, following almost two decades of public debate on the pros and cons o f a Federal government national health insurance system, there have emerged two widely adopted non-governmental approaches to the health insurance problem. T o d a y these two are vying with each other for public approval. T h e immediate health insurance issue confronting the American people—the labor unions and employers—is not the one o f a governmental versus a nongovernmental, or voluntary, approach to health insurance. It is, rather, the issue o f which o f the alternative voluntary approaches is based on principles which will, over the long term, most nearly satisfy the economic and social needs for health insurance protection. At stake, primarily, is the community pattern for voluntary prepayment which will become dominant over the next decade. But deeper than this is a more fundamental issue: and this is the ultimate role in health care financing to be played by voluntary health insurance on one hand, and government on the other hand. T h e ultimate role o f government is a question which can be resolved only after the voluntary plans have demonstrated what they can, and cannot, accomplish. This is the test being made today and, for the most part, it is the test between two approaches to the health insurance problem.

APPROACHES TO HEALTH INSURANCE PROBLEM

T h e alternatives being tested today are the approach o f the insurance companies and the approach o f the Blue Cross and the Blue Shield Plans. Virtually the entire covered population is protected by one or the other of these two types of prepayment arrangements. There are, however, a number of very significant, and largely experimental, approaches to voluntary health insurance which do not properly fall under either o f these two types o f plans for health care financing. These experi* President, Blue Cross Association. 238

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ments, or demonstrations tend to focus m o r e o n the problems o f an i m p r o v e d organization o f health services than o n basic differences in principles o f p r e p a y ment. T h e potential impact o f the experimental plans, wliich m i g h t be termed the "independent plans" w o u l d n o t appear at this time to be great insofar as the n u m b e r o f persons they are likely to cover is concerned. Their impact o n health insurance thinking is, nevertheless, m u c h greater than the figures o n the p r o p o r t i o n o f the population they cover w o u l d suggest. It should be said, perhaps, that these " i n d e pendent plans" are m o r e closely allied w i t h the underlying B l u e C r o s s and B l u e Shield concept than the concepts o f the insurance industry because t h e y are, quite appropriately, a variation o f the c o m m u n i t y approach and focus o n service rather than cash indemnification. Q u i t e c o m m o n l y the B l u e Cross and B l u e Shield Plans are referred to as the service benefit approach. T h i s is in contrast to the cash i n d e m n i t y benefit inherent in the insurance industry's attack o n the health insurance

concept problem.

U n d e r the service benefit concept the intent is to g i v e the c o v e r e d individual the assurance that the care he w i l l need w i l l be available to h i m w i t h o u t e c o n o m i c barrier imposed at the time o f illness—the idea is to p r o v i d e the assurance o f necessary services rather than a specified dollar benefit to assist h i m in p a y i n g f o r the health care w h i c h he receives. T h e line o f demarcation b e t w e e n these t w o concepts can be sharply d r a w n . In d o i n g so t w o distinctly different approaches to health insurance c o m e into focus. T h e s e differences, it w o u l d appear, place o n e approach squarely in the f r a m e w o r k o f historical insurance thinking and the other clearly in the f r a m e w o r k o f a n o n insurance, c o m m u n i t y service concept. T h e latter is closely geared t o the idea o f an organized v o l u n t a r y c o m m u n i t y effort to do w h a t w o u l d o t h e r w i s e h a v e t o b e d o n e b y a g o v e r n m e n t agency. T h e c o m m u n i t y approach is n o t p r i m a r i l y , i f at all, w i t h i n the usual, technical meaning o f the term "insurance" b u t is m o r e p r o p e r l y placed in an entirely different context. V o l u n t a r y health insurance has n o t crystallized into a relatively fixed and g e n e r ally accepted pattern. T h e w h o l e idea, and the administrative m e t h o d s e m p l o y e d , are in the f o r m a t i v e stage. In this context the issue o f the best a p p r o a c h to health care financing is o n e that ranks a m o n g the m a j o r public p o l i c y questions c o n f r o n t i n g the p e o p l e today. It is an issue around w h i c h decisions should n o t be made prematurely or w i t h o u t far m o r e public discussion than has occurred thus far. W h a t is needed most is m o r e public debate, a m o r e articulate public u n d e r standing, o f the i m p o r t o f alternative choices in the approaches t o health care financing.

T o obtain this discussion, and this public understanding, is o n e o f the

b i g tasks facing the voluntary health insurance plans.

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There are eighty Blue Cross Plans in the United States and sixty-seven Blue Shield Plans. Some o f the plans are state-wide, others cover districts within states, and some serve primarily a single community—usually a county or city area. In recent years there has been a trend toward fewer small plans and consequently, a smaller total number o f plans. All geographical areas in the country are served by one or the other o f the plans. Collectively the plans are, therefore, nationwide. Each local plan is autonomous but must meet established approval standards to use the Blue Cross and Blue Shield symbols and to be a member Blue Cross or Blue Shield plan. Most o f the plans are established under state laws enacted specifically to provide a legal base for their operation. These state laws give official recognition to the unique character of the plans and the particular service they render to the local communities. The state regulatory authority varies from state to state, as does the type o f state supervision, but in most instances the plans are under the control o f state authorities in such matters as rates charged the public and amount o f reserves to be maintained. The Blue Cross Plans have a national coordinating agency, the Blue Cross Commission, in which all plans participate. This commission is under the policy direction o f persons elected by the plans to serve as members of the commission. Organizationally the commission is a constituent body of the American Hospital Association. Its functions include liaison with the policy-making body of the American Hospital Association. In addition, it collects statistical and financial data and performs planning and advisory functions on behalf o f the individual plans. A similar national organization functions on behalf of the Blue Shield Plans. This year the Blue Cross Plans established a national office to represent them in matters o f national enrollment and national promotion and public relations. This office, The Blue Cross Association, is just getting under way. Membership in the association is voluntary. Those plans that participate in The Blue Cross Association must agree to the requirements of membership which relate primarily to service to groups wanting to deal with a single Blue Cross representative. Approximately 70 per cent o f all persons working for others are employed by concerns that operate in more than one Blue Cross Plan area which suggest, in part, the necessity for a national Blue Cross organization which functions on behalf of all plani. About 85 per cent o f the Blue Cross membership of over fifty million is in plans o f the Blue Cross Association. The Blue Cross Association can be expected to overcome the difficulties that have existed in the past in rendering a centralized service to large national employer). It will, in addition, materially strengthen the public relations activities of the severd Blue Cross plans. W e think establishment o f the national Blue Cross Associati 01 will undoubtedly prove to be the most far-reaching and forward step since the

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local Blue Cross Plans realized that the problems with which they are working are as much national as local in import. Such a national association of the Blue Cross Plans gives them an effective national instrument the lack of which, in the past, has been a serious handicap. Most of the functions of The Blue Cross Association are being developed, in counterpart, by the Blue Shield Plans within the organizational framework of their national association. The close working relationship, on enrollment and related problems, which now exists between local Blue Cross and Blue Shield Plans will also exist between these two organizations at the national level.

OPERATION OF BLUE CROSS PLANS

In 1956 the Blue Cross Plans received from the public some 1,122 million of dollars and paid out to hospitals approximately $1,04.0 millions or 92 per cent of all monies received. Blue Shield, for 1956, received from the public $536 millions and paid out in benefits $482 millions. Blue Cross paid out in benefits a higher sum than the combined total for the approximately nine hundred insurance companies engaged in the business of selling hospital benefits. The overhead cost of the Blue Cross and Blue Shield Plans, on the average for the country as a whole, is lower than that for any carrier with a reasonably like distribution of employee groups by size and geographical location. Blue Cross has more persons covered under group enrollment, that is by place of employment, than all other types of prepayment agencies combined. Blue Cross and Blue Shield, however, have not gone as far with non-group enrollment, that is persons who enroll as individuals and not members of a group, as have the insurance companies. The insurance companies have less group enrollment than Blue Cross and more individual, or non-group enrollment. Seven of the ten largest industrial corporations in the United States have Blue Cross and Blue Shield coverage for their employees and their dependents. Considering that Blue Cross and Blue Shield are local community prepayment plans, in the past without a national operating agency, their record of accomplishment has been miraculous. This is even more true when it is realized tlat each of the local plans has had several hundred, or more, insurance company competitors. PROBLEMS AND STRENGTHS

Problems national in character that need more intensive attack are those of mtional pooling of risks, development of nationally uniform benefits and rates, aid, of course, community relations and community organization functions applicable to the national community. The insurance companies can, in many respects, meet national problems more easily than can locally oriented prepayment plans.

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But on the other hand, it is the peculiarly local character of the plans, and the effectiveness of their local operations, which have given them their greatest strength; it is a strength at the community level which no organization building from the top down can achieve. In addition to the strength that comes from building from the bottom up, the community prepayment plans have many other strengths which characterize their approach to prepayment. B y far the most outstanding strength is the fact that the plans are sponsored by the providers of services. In the case of hospitals, for example, the community Blue Cross Plans are, in reality, the financing arm of the community hospital system. Blue Cross Plans perform on behalf of the hospitals the same economic function that the monthly collections system for telephone and electric power services perform for the community agencies providing these services. The plans are to hospitals what the system of installment buying is to the electrical appliance and automobile industries. Like the hospitals themselves, the plans are non-profit, and under the policy direction of a board of trustees representative of the hospitals as well as the general public interest. But what is most important about sponsorship, and actual underwriting, by the providers of services, is not the function of being their financing arm. The most important part of this organic relationship is that the prepayment agency, to do the job that must be done on behalf of the public, must have a partnership relationship with the provider of services as well as with the buyer of protection against the costs of health care. The economic function the plans perform for the community is not, technically, one of insurance. Traditional or historical insurance concepts, initially developed and more applicable to Ufe and income maintenance benefits than to hospitalmedical protection, are not compatible with the objectives of Blue Cross-Blue Shield Plans. Rigid application of "insurance principles," developed initially for replacement of income losses, is not possible, or desirable, in the case of the Blues. The criteria of pooling the risks and costs of illness are, of course, present, but most of the other criteria for traditional insurance function are lacking. The community plans are not, in fact, "selling" the public an insurance function. That is the exposing of reserves and other resources to a risk—with the motive a profit return on capital either for stockholders or for policyholders. What the community plans offer the public is vastly more than "selling" the mechanics of an insurance operation. Out of this fact stems the important difference between the approach of the insurance industry and that of the community prepayment plans. This difference is philosophical but it reaches into all recesses of operation—both local and national. This is not a difference of words, but, rather, a difference that is basic to all phases of operation. It determines the character of the prepayment organization and its long-view obligations to the public, the provider of health services and, most

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important o f all, to the community as a social organization with responsibility to the people and institutions o f which it is composed. W h e n a community agency, as a constituent agency o f the community, is set up to meet a community need, many functions must be performed which would be neither compatible or consistent with the purposes for which an insurance company is in business. In providing all segments o f the community with protection against the costs o f illness, and in the role o f agents for financing community health care, the community prepayment plans are acting as a specialized, and non-governmental, counterpart o f the larger fabric o f organized community efforts. Such agencies servicing the total community come into being because there are functions which need to be performed on behalf o f people living together in a community which the individuals in the group cannot themselves perform alone. Like the community hospitals, the community prepayment plans are organized as a community agency to do under non-governmental auspices what must be done b y and on behalf o f the organized community. Inherent in the community plan approach is the provision o f a standard o f benefits designed to assure to the public needed protection against the costs o f hospital care. This standard is geared to the types o f services generally available and to what will be generally sought by the covered population. It is not the intent o f the plans to provide benefits for services that are o f marginal value economically and clinically, nor to provide benefits which will encourage inappropriate use o f facilities and services or will disturb existing arrangements for services which are economically sound. T h e Blue Plans also want to avoid measures tending to inflate the cost o f care. W h o l e blood, for example, is not generally provided as a benefit because, from the community point o f view, it is not payment for blood but replacement o f blood which is the problem. Psychiatric services in special hospitals are not commonly provided as a benefit because it is believed that other health needs should have priority. T h e community plans do not reduce benefits to what might be called a "price appeal" level or provide benefits designed primarily for "sales appeal." Benefits are geared, instead, to what is needed to do the j o b o f providing reasonably adequate protection. The level o f community benefits, and the price for protection must, consequently, be in relation to what represents an accepted community standard both for protection and for price to be paid. There are, as all w h o w o r k with voluntary health insurance k n o w , many problems and issues confronting all prepayment agencies, and inherent in any approach adopted. From the point o f view o f the community prepayment plans the central questions are: ι . Is the problem one o f providing a mechanism which will give the public assurance o f needed care without economic barrier and without jeopardy to family spending commitments ?

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2. Is the problem one of bringing within reach of all families a mechanism which will enable them to pay for their own care if the convenience of prepayment is utilized? If voluntary prepayment is intended to answer these questions in the affirmative, to meet these social and economic problems to the fullest extent possible, the community prepayment agencies feel that they have the organic relationship with the providers of service, the community orientation, the function of liaison between the buyer and the provider of services, to do the job that must be done. Admittedly the job that must be done has only begun, there are many unfinished tasks ahead, but there is nothing strange about this. After all, the ideas of voluntary prepayment is today hardly more than a demonstration of what can be done ; and of the potential in the idea of an effective tripartite partnership of the public, the providers of health care, and the prepayment agency. The party at interest most concerned, of course, is the total community composed of the well, the sick, the rich, the poor, the young, and the old.

The Insurance Company Approach to Health Insurance in the United States by E . J . F a u l k n e r *

In all the exciting annals of private enterprise in insurance no record of phenomenal growth surpasses that of voluntary private health insurance in the United States during the past quarter century. An extraordinary concatenation of circumstances and influences has provided health insurance companies the rare opportunity that they have grasped and developed aggressively. DEVELOPMENT OF HEALTH INSURANCE

Accident insurance, a part of the broad field of health insurance, has had an uninterrupted history of ninety-three years in the United States. James G. Batterson, founder of the Travelers Insurance Company of Hartford, borrowed from the procedures of the Railway Passengers' Assurance Society of London when establishing his organization which was the first successful American company. From necessarily modest beginnings, primarily limited indemnity for travel accidents, accident insurance spread rather rapidly as coverage was broadened to provide loss-of-time benefits when injury, sustained under nearly any circumstance, disabled the insured. Income protection for loss due to specified sicknesses was introduced about 1890 and grew gradually until fairly broad coverage commercial sickness insurance was not unusual by 1910. Meanwhile, also, a number of companies supplemented the indemnities for loss-of-income due to disability with a variety of small benefits intended to help defray the cost of doctor and hospital. In the second decade of the twentieth century several insurers began to issue policies in which the right of renewal from term to term was vested solely in the insured and for about fifteen years non-cancellable insurance enjoyed a considerable vogue. However, by 1930 mounting losses stemming from underwriting mistakes and inadequate premium rates began to force a contraction of the non-cancellable business. During the depression years of the early 30's the insurers suffered from a very marked increase in losses, a problem which was intensified by heavy lapsation of insurance and a dwindling premium income. In 1933, the depression low point, the total premium volume of voluntary insurers was only $157,000,000. Not more * President, Woodmen Accident and Life Company. 9

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than 400 companies were engaged actively in issuing health insurance in the United States at that time. Contrasted with what it was just twenty-four years ago, health insurance in this country today is a vastly different business. The depression induced a securityconsciousness in most Americans which was an attitude new to our people. Prior generations had exalted opportunity and given relatively little thought to means for assuring security. The economic distress of the depression years, however, turned the minds of many to ways of protecting themselves against the financial impact of death, disability, and destitution. The process of industrialization which had been going on in this country for seventy-five years had led to urbanization. Urbanization in turn contributed to the breakdown of the family circle as a tight economic unit. The simple community and family arrangements that had sufficed to carry an individual or a family through periods of disability when life was pastoral and uncomplicated were no longer adequate. Concurrently, the spectacular advances of scientific medicine had made the provision of adequate health care much more complex and costly. All of these influences gave impetus to the growing interest in devices for collective security. Following the decision of the U.S. Supreme Court in the Inland Steel case (336 U.S. 960, 1949) fringe benefits including health insurance became a prime bargaining objective of organized labor. Since contributions to the cost of group insurance for employees was an income tax deductible business expense, employers in increasing numbers established plans of health insurance as an effective and relatively inexpensive way to help their employees achieve financial stability. In other lands with the decline in competence of the individual to provide for Iiis own care during disability, government stepped in with schemes of compulsory insurance and socialized medicine. In America, however, the tradition of private enterprise was strong and when private insurers sensed the growing public demand for protection against the costs of health care they moved vigorously to develop their opportunity to provide it. The extent of voluntary health insurance in the United States today is convincing of the overwhelming endorsement by the American people of the voluntary insurance approach to the problem of financing health care costs. In 1956, voluntary health insurers of all kinds collected premiums amounting to $4,960,000,000. This constituted a 315 per cent increase in the volume of business since 1933. One hundred and sixteen million Americans now have insurance against all or part of the costs of hospital care. More than two-thirds of the gainfully employed population are indemnified against wage loss due to disability. Of the total voluntary health insurance in force in this country the insurance companies, as distinct from the service plans, wrote premiums of $3,253,000,000 last year. Benefits disbursed by the insurance companies in 1956 amounted to $2,100,000,000. The expansion in the volume of voluntary health insurance has been matched and

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doubtless in large part induced by the continuing improvement in the quality of the protection provided. V O L U N T A R Y PRIVATE INSURANCE

Voluntary health insurance is underwritten in the United States today by 1,100 insurers. No other line of insurance is offered by so heterogeneous an array of carriers. Health insurance cuts across the traditional statutory compartmentation of insurance in this country. It is underwritten by life insurers and property insurers. It is offered by stock companies, mutual legal reserve companies, fraternal societies, assessment associations and reciprocal exchanges. No other line of insurance is distributed in so many different ways. Most of the business, of course, is sold through agents and brokers representing one or a number of different insurers, but it is also distributed by lodge deputies, through various clubs and associations, and even sold by vending machine. This lack of homogeneity in health insurance accounts for many of its pronounced strengths and greatest weaknesses. Diversity of approach has brought into play all manner of ingenuity and innovation. It has been a stimulus to the development of better protection by all. The variety of background form of organization, and area of service has meant, however, that it has been very difficult to formulate a single industry point of view on the problems of the business, and has contributed somewhat to public bewilderment because of the vast number of kinds of policies available. In this day of exceedingly complex economic, social and political relationships it would be unusual indeed if public agencies and private groups concerned with the general welfare did not have a strong interest in voluntary health insurance. This is a business that insures intimate and highly personal values against an omnipresent hazard. This is a business about which nearly everyone, informed or otherwise, has an opinion. As Ffrangcon Roberts in his book The Cost of Health has pointed out: "Among all the subjects with which governments are concerned, health is in many aspects unique. Emotion and sentiment are its natural accretions, of which it can be stripped only with the greatest difficulty and those attempting the task run the risk of being charged with callousness." The business is increasingly afflicted by weird proposals that would warp the insurance mechanism to achieve laudable if impractical community objectives. The important social implications of health insurance do not exempt it from the necessity of adhering to sound insurance fundamentals if it is to endure. Insurance is simply an economic mechanism for substituting certainty through the pooling of risks. Not every situation that is fraught with uncertainty is susceptible to application of the insurance technique. Some risks are so great as to be atypical and impractical of pooling or transference. Some people are unable financially to pay the premium for insurance. These risks and these people are uninsurable and social devices that seek to extend protection to them are not insurance

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despite any uninformed opinion to the contrary or legislative fiat that seeks to make it so. To be insurable a risk must be common to a sufficient number of like exposure units to permit reasonably accurate prediction of the total loss. The loss must be accidental, subject to measurement and vérification, and unlikely to occur simultaneously to any considerable segment of the insured group. Most costs arising from disability, whether wage loss or care expense, fall within the scope of insurance, but to succeed in underwriting these costs, the insurer irrespective of type, sponsorship or statutory status must conform to time-tested insurance principles. TYPES OF BENEFITS

Voluntary health insurance offers two principal categories of benefits. The first provides a continuing income when because of disability the income earner is unable to work. The second category reimburses the insured for health care expenses directly attributable to illness or injury. Loss-of-income indemnity was the first type of benefit to be offered by the insurance companies. In the early days of the business only small amounts of indemnity were insured and these for but limited periods of disability. N o w insurers are willing to issue or to participate with other insurers in the issuance of up to $1,000 of monthly indemnity. It is common for such benefits to be provided for the entire duration of disability occasioned by an injury. So-called lifetime benefits are less common in sickness insurance, but companies do frequently issue benefits for loss of income due to sickness limited to two, five or ten years with benefits for disability to age sixty-five available in some instances. When underwriting loss-of-income benefits the insurer is concerned that the amount of indemnity provided shall not exceed the net income after taxes that the insured has earned prior to disability. Obviously the moral hazard undertaken by the insuring company is enhanced substantially if the policyholder will derive a greater income from being disabled than from being at work. Since the experience with "jumbo" risks—that is, those in which very large sums of monthly or weekly indemnity are provided—has always been bad, the percentage of indemnity to net earned income that will be issued declines as income rises. Loss of income from the first day of disability due to accident is often covered, but indemnity for loss of income due to sickness ordinarily does not commence until the fourth, eighth, or fifteenth day of disability. The so-called deductible provision which eliminates from coverage the first few days of any disability is a practical recognition that most people during the course of a year suffer from some trifling illness for which provision is better made in the family budget than by an attempt to insure the loss. Accidental death benefits in theory provide an extension of the insured's income for a limited period after his demise. The second category of benefits is that which provides reimbursement of health

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care costs. These benefits have had an extremely rapid development in the past t w o decades. Initially the insurance companies offered a modest schedule of benefits providing for the payment of a specified number of dollars per day for each day that the insured was confined to a hospital plus named sums for various expenses connected with hospitalization such as use of the operating room, x-ray examination, laboratory fees and the administration of anesthesia. Some policies also provided reimbursement of the cost o f surgery according to a fee schedule. The allocated benefits for hospital and surgical expenses suffered from the defect of inflexibility. In order to provide more satisfactory coverage the companies prepared and marketed in the early 30's a blanket form of reimbursement covering nearly every kind of hospital, medical and surgical expense due to injury. This benefit was limited only in the total amount payable for all such expenses arising from any one accident. It was not until some six years ago that the companies felt that they had sufficient experience with the costs of health care to extend the blanket reimbursement form to cover the expenses of sickness. This important step was taken when the major medical expense benefit was introduced. Subject to a deductible, usually based on the income of the insured or the amount o f any benefits provided by basic hospital, surgical, or medical insurance the major medical expense benefit binds the insurer to pay 75 or 80 per cent of all health care expenses accruing because of disability whether from illness or injury up to the maximum aggregate limit insured. This form is issued on an individual, family, or a group basis. Because it provides substantial protection against the costs o f serious, financially crippling illnesses up to $5,000, $10,000, or even $15,000 in a single case, depending on the limit purchased, major medical expense insurance has grown rapidly. A refinement of major medical insurance, the comprehensive form is written with a small deductible, often as little as $50. It eliminates the need for basic benefits and will likely become the most satisfactory and popular form of health care cost insurance.

LIBERALIZATION OF POLICIES

The policies of the private insurers have been improved not only by a liberalization o f benefits in kind and amount, but through simplification of the other conditions of the contract. A t one time health insurance policies contained a variety o f exclusions that eliminated from coverage specified disabilities or disabilities incurred under particular circumstances. Today, the typical policy excludes from coverage only a few disabilities, the usual exclusions being simply loss due to war, suicide, self-inflicted injury, conditions covered under workmen's compensation benefits and injuries sustained because of air travel other than on commercial airlines. Particularly since the enactment of the Uniform Accident and Health Insurance Policy Provisions Law, insurers have been able to simplify and improve

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many conditions of the contract. The uniform law permits insurers to write the operating provisions of the policy in a more liberal manner than the minimum standard required by the statute. N o w the health insurance policy provides a grace period for the payment of renewal premiums. A clause establishing a time limit on certain defenses also is included imparting even to commercial contracts a degree of certainty somewhat akin to that conferred by the incontestable clause found in non-cancellable health insurance policies and Ufe insurance. Competition has been the driving force that has spread more liberal coverage throughout the entire market. When one insurer develops a new and better benefit or procedure, it is not long until others copy the innovation. FEATURES OF INSURANCE COMPANY APPROACH

Certain important features of health insurance as issued by insurance companies differentiate it from the coverage provided by service plans and other types o f voluntary health insurers. Even so, it is difficult to generalize about health insurers of any kind because within the various categories there are differences in method and coverage. However, one traditional feature of the insurance company contract is that it specifies that benefits will be paid in cash. Both the indemnity for loss of income due to disability and the hospital and medical care benefits are payable to the insured. O f course, insurers accept assignment of benefits to doctor or hospital if that is the insured's wish. The contract, however, is between the insurer and the insured. This arrangement differs from that of the service plans whose benefits in most instances are entitlement to receive specified care itself. The plan pays the doctor or hospital directly for services rendered its subscribers. While receipt of cash indemnity has a definite appeal to most people because it gives them control of the insurance proceeds, there is no guarantee that the indemnity provided will satisfy the bill of the doctor or hospital. It is implied in the cash indemnity concept that there is a separation of the purveyor of care and the insurer. Insurance companies contend that the actual provision of service and the financing thereof are functions that are not always compatible. It has been pointed out that when the purveyor of the health care, the doctor, or the hospital, is also the insurer, the way is opened either to alter the quality and quantity of care to fit the insurance premium or to adjust the insurance premium to meet the income level desired by the purveyor of care. In most service plans the doctors or the hospitals are the ultimate insurers. The insurer is also the beneficiary. When a loss occurs the insurer pays himself. That this identity of interest has not yet been dangerous to the public is because of the effective competition between service plans and insurance companies. It makes a high standard of performance by all insurers essential to survival. It is characteristic, however, of the insurance company approach that there is definite separation between the purveyor of care and the insurer.

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A second important feature of the insurance company approach is the increasing use of the deductible. Dr. Ralph H. Blanchard has pointed out: In terms of loss from disability, an insured needs replacement o f loss o f earning power and o f care or money to purchase care. And, what part o f this should be secured through insurance ? Perhaps this question is best approached negatively. One should not insure against losses that can be bome by one's self without embarrassment or that are predictable with a fair degree o f accuracy in the individual case. T o the extent that insurance is taken against such losses the part of the premium paid to cover operating expenses o f the business is wasted and the operating expense o f paying small losses is o f course disproportionate.

The concept of eliminating from coverage the first few dollars of every loss so common in automobile collision and other property coverages is only now gaining acceptance in health insurance. In the course of a year nearly everyone loses a few days because of a scratch or a sniffle. He will spend a few dollars at the drug store for his favorite nostrums and will see his doctor and dentist for routine checkups and maintenance procedures. These expenses which are routine, recurrent, and relatively trifling are not economically insurable. Rather, they are as appropriate a part o f the family budget as food, shelter, and clothing. Insurance contracts that cover these piddling, nearly certain expenses, are simply dollar-swapping arrangements in which the insured must pay the proportionately heavy cost of administration. When, through the use of a deductible, these costs are eliminated from coverage, the insured's premium dollars are conserved to purchase more adequate protection against the really serious hazard of sizeable loss. It has only been with the growing maturity of health insurance that the deductible has been used widely. Formerly, first-day and first-dollar coverage was usual and many applicants still show a preference for the policy that seems to promise them the opportunity "to get their money back every year." In time, the deductible will become a universally accepted feature of health insurance because it is economically sound and desirable. Because sickness involves a high degree of subjectivity on the part of the insured, the underwriting process must take careful note o f the moral hazard implicit in providing benefits against loss due to disability. It would be ideal if the health insurance contract could be so written as to replace all loss sustained by the insured — n o more, no less. But because of the vagaries of human nature unless the insured has a well-defined financial incentive to terminate disability as promptly as possible, there is a temptation to malinger. If the insurer is responsible for the payment o f all costs of treatment, some insureds and some medical practitioners are inclined to "shoot the works" by permitting or procuring treatment that is not essential to recovery. It is to guard against abuses of this kind that insurance company contracts follow the principle of coinsurance. It is important to understand that the word "coinsurance" as used in health insurance has a different meaning than when used

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in property insurance. In health insurance the concept of coinsurance is simply that the insured will bear some part of every element of the financial loss. Thus, lossof-income protection is never issued in excess of 80 per cent of the insured's average earned income. And, in blanket reimbursement coverage such as major medical expense insurance the coinsurance clause requires the insured to bear 20 or 25 per cent of each element of health care expense. Without some gently restraining influence against malingering, over-prescription, and extravagance in treatment, losses would be aggravated and the insurance would become impractical or unduly expensive. Hence, the purpose of coinsurance is to restrain unreasonable loss and make possible the insurance at premiums that are reasonable. Another characteristic of the insurance company approach is that the premium rates charged discriminate among insureds in terms of the risk assumed by the insurer. Insurance statutes in the several states require that premium rates shall be equitable, adequate, and not unfairly discriminatory. They might well also provide that rates shall discriminate fairly. These attributes of the charge for insurance are well known and understood by experienced underwriters of all lines of coverage. Discrimination among groups of insureds based upon the evaluation of the chance of loss of each is essential to equity. If the same community-wide rate applies to all who are insured regardless of marked differences in the hazard presented, the better risks will in effect subsidize the poorer risks. Survival of the enterprise in a competitive atmosphere requires that each insured pay in premiums an amount approximating the cost of the hazard that the insurer has assumed for him. If there is unfair discrimination or the absence of fair discrimination in premiums, by the process of selection against the insurer the enterprise will be left with only the poorer risks and faced with steadily mounting loss ratios. Advocates of the flat premium rate contend that unless the good risks subsidize the poor risks those that present the greatest hazard cannot afford to buy insurance. While it is undoubtedly true that there are some segments of our population whose hazard is so great or whose resources are so meager that insurance is beyond their reach, this is not an indictment of voluntary insurance which is not, after all, an eleemosynary institution. The cost of health care for these people is a proper charge against the whole body politic through the usual channels of assistance and relief and should not be assessed solely against the participants in voluntary insurance arrangements. It is not always possible to make exactly precise discriminations in rate, but fair discrimination to the greatest degree practical is essential to underwriting success. RECENT DEVELOPMENTS

In the past quarter of a century private health insurers in America have created more real security for more people against an omnipresent hazard than ever before in the history of the insurance business. Despite this amazing record, it

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should surprise no one that there are today gaps in the coverage provided by voluntary insurance. Until the recent past, the insurers have been so occupied with the vast task of protecting the mass of Americans that they have been unable to devote themselves intensively to devising ways of insuring special segments of the population who present unusual problems of coverage. Now, strengthened by wide experience, the insurers are beginning to make substantial inroads on the number of people who are uninsured or under-insured because of age, impairment, or inaccessibility. The problem of the aged is becoming more serious because of the lengthening life span in America. Today there are more than fourteen million persons in the United States over sixty-five years of age. This is 8.4 per cent of the entire population. By 1975 it is expected that there will be over 21 million of our citizens in the over age sixty-five category. The problem of insuring the aged is of personal and public importance because it is during the later years of life that the liability to disability is the greatest and the expense of providing health care the highest. It is during this period of Ufe also that the average person is least able to defray the costs of ill health out of savings or current income. With retirement from active work, the need no longer exists for loss-of-income insurance and so there is no particular problem of the aged with this phase of health insurance. It is customary, however, under both group and individual forms of loss-of-income insurance to continue protection beyond the normal retirement age of sixty-five if the insured continues to be employed productively. In recent years, most insurers have extended age limits both for the issuance of new coverage to insurable risks and for the continuance of the coverage of those insured during their earlier years. The problem confronting the insurer when dealing with the aged risk is largely a matter of funding for an indeterminate cost. From available experience statistics, it is not difficult to determine an adequate current premium. Since, however, insurance costs rise sharply after age sixty, in the absence of advance preparation the insured may not be able to pay the substantially higher costs at the older ages. Hopeful experiments are now under way that give promise of providing a solution to this problem. One approach, available in group insurance, is for the employer and the insurer to continue the retired employee and his spouse as members of the insured group for hospital and medical care benefits. This spreads the burden of cost over the whole group. Another new approach offered on both an individual and group basis provides that the hospital and medical care benefits will become paid-up at the time of retirement. This, of course, is accomplished by charging a premium that is somewhat higher than required during the working years in order that the insurance may be continued after retirement without further premium payment. Collaterally, insurers are working with purveyors of health care to encourage the use of adequate, but less expensive, methods of care and treatment for the aged. Out-patient care or

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care provided in nursing homes rather than general hospitals in many cases suffices amply and is far less costly. The experiments now under way should in time provide satisfactory solutions to the problem of insuring the aged. In the past fifty years the life insurance business has perfected its techniques for extending insurance to people who are suffering from some physical impairment. Comparable progress has not yet been made in health insurance but many experiments with such coverage are now being made. There is no problem with the impaired risk in group health insurance because individual insurability is not a condition precedent to coverage. The impaired person is given the same coverage as the one in standard health. Even though evidence of insurability is required in order to secure individual insurance, much individual coverage has been issued, subject to restrictive endorsement, to persons suffering from particular afflictions. B y eliminating from entitlement to benefits loss due to the impairment, it is frequently possible for the insurer to cover the impaired individual for disability from all other causes. Today a number of insurers are issuing full coverage to substandard risks with premiums weighted according to the impairment. It is altogether likely that substandard health insurance underwriting will continue to develop so that in time most impaired persons will be able to secure full coverage for an appropriate extra premium. Critics of voluntary health insurance have been wont to allege that the insurers have neglected the rural or inaccessible risks supporting their argument by pointing out that a smaller percentage of rural risks than urban risks are insured. Insurers find no underwriting obstacle to insuring the rural risk. The problem rather is a sales problem. In rural areas the tradition of home care is still very strong. Much of the complex apparatus of modern medicine is remote from the rural risk. Hence, the feeling of need for health care coverage is less urgent in the rural areas than in the cities. However, considerable progress is being made in insuring this element of our population. Through merchandising and premium collection devices country people are being encouraged to secure health insurance. Such insurance is being promoted through farm organizations like the 4-H Clubs, cooperative creameries and other farm marketing associations. Often these organizations assume the responsibility for collecting the premiums and remitting them to the insurer. The problem of the indigent and the low income group is of a different kind. As suggested heretofore, those who do not have the funds with which to pay the insurance premium are not satisfactory subjects for insurance. Rather, their care is a responsibility of the state and is best and most economically provided through the usual channels for relief and assistance administered at the local level. The prosperity that our country has enjoyed in the past decade has reduced the number of those who are absolutely without the ability to pay for voluntary health insurance. The rapid growth of group insurance in which a substantial part of the cost is borne by the employer has been a boon to those of meager means.

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Critics of voluntary health insurance have assailed it because approximately 85 per cent of the individual insurance is written on a commercial basis which means that the insurance may be renewed from term to term only with the consent of both the insurer and the insured. It has been alleged that insurers retire from a risk when the policyholder's health begins to deteriorate which is just the time that protection is needed most. Insurers have been sensitive to this criticism even though studies such as that conducted by the Insurance Department o f the State of North Carolina reveal that as little as 0.36 per cent of commercial insurance is not renewed for all reasons including moral hazard, attempted fraud, and deterioration in the health of the insured. The companies seek to give a stability to the coverage by experimenting with guarantees that the company will not refuse to renew simply because of deterioration in the health of the policyholder or by placing the impaired policyholder in a special class that is continued in force but on which no agency commissions are paid. Non-cancellable coverage has gained in volume, but because of the necessarily more restrictive underwriting standards and the higher premiums for non-cancellable insurance, the bulk of voluntary health insurance is still sold on the commercial form. A n interesting innovation intended to assure continuity of coverage is the guaranteed renewable adjustable premium form. In this type o f contract the insurer covenants to renew the coverage of each individual insured but reserves the right to change the table of premium rates applicable to broad classes o f insureds. Particularly when insuring so volatile a risk as the cost o f health care which has had a long secular upward trend, the adjustable premium guaranteed renewable policy seems to offer many advantages. The insured cannot be deprived o f his insurance so long as he pays the required premium. The insurer whose function it is to spread the cost o f losses and expense among the whole insured group has the power to determine periodically what these costs are and apportion them fairly. From the many experiments with contract renewability, it is believed that a strong and satisfactory pattern of coverage is emerging.

THE FUTURE

The future of voluntary health insurance in the United States appears bright. The business is suffused with a consciousness of the social importance of satisfactory performance in the public interest. It knows that it can progress if it is permitted to experiment widely and to conduct research looking toward better methods. This experimentation and research can only be carried out in an atmosphere free of onerous statutory contract provision or rate regulation by government. Competition by government can blight the growth of voluntary insurance because such competition is never fair competition. The free competition that exists among more than ι , ι ο ο private insurers is the best guarantee that as improvements in

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coverage can be developed they will be spread across the market. Such competition is the best regulator of rate assuring that protection will be available at as close to cost as is possible consonant with sound operation. There is encouragement to be found in the growing understanding between doctors and hospitals on the one hand and insurers on the other. Without such understanding, without patience and a willingness to work together, the problems of voluntary health insurance would be multiplied and intensified. Another favorable augury for the continued growth and improvement is the broadening popular knowledge of voluntary health insurance, what it is, how it operates, what may be expected of it and what its limitations are. Finally, the business has been strengthened by the recent formation of the Health Insurance Association of America and its public relations and information instrumentality, the Health Insurance Institute. Through these organizations the responsible leadership of the business has proved that while competing fiercely in the field, it is possible for insurers to join in a concerted effort to expand and improve voluntary health insurance in the public interest. W e who best know voluntary health insurance are confident of its ability to bring a satisfactory measure of protection to all insurable Americans.

Canadian Developments in Hospital Insurance by Frank C. Dimock*

A t the turn o f the century, in a burst o f optimism, Sir Wilfred Laurier, one o f Canada's great statesmen, declared that the twentieth century would be Canada's. O n the evidence then available it must be admitted that this assertion was based largely on hope. However, as a result o f an upsurge in industrial expansion brought on by t w o W o r l d Wars and tremendous development o f our natural resources, our real output in 1956 was 2.5 times that in 1939. Also at the turn o f the century, the publication o f the Fabian Essays marked the beginning o f a n e w approach to socialism. The authors put forward the philosophy o f gradualism—the patient step-by-step evolution o f the welfare state through the democratic process—as against the revolutionary or "forceful o v e r t h r o w " ideas o f the past. Those authors would, I am sure, like Sir Wilfred Laurier, be amazed at the extent to which their visions have been realized in the Canada o f today. Canada is n o w on the verge o f adding another large stone to the cairn c o m m e m o rating the original Fabians. The stone has not been put firmly in place, but the legislative mortar is ready. O n April 10,1957, the Canadian House o f C o m m o n s passed without a dissenting vote legislation undertaking to extend financial assistance to provinces establishing government hospital service plans. T h e legislation contained the condition that no Federal contributions are to be paid until at least six provinces with at least one half the population o f Canada have entered into an agreement with the Federal government and the necessary legislation in the participating provinces has been put into force. T o date six provinces representing 59 per cent o f the Canadian people have committed themselves to participate. Copies o f the proposed agreements are n o w in their hands and will probably be executed shortly and the first Federal contributions will likely be made in 1958 or 1959. It has been suggested that I trace some o f the developments leading up to this situation and I shall do so as objectively as I can.

CURRENT SITUATION

O v e r seven million Canadians out o f a total population o f 16,400,000 are voluntarily purchasing insurance from the private agencies to protect themselves * Research Assistant, The Canadian Life Insurance Officers Association.

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against the financial impact of hospital costs. Blue Cross insures over half of these persons; the insurance companies insure just less than half and a number of small cooperative plans provide insurance for about 370,000. The number of 7,000,000 would of course be larger but for the fact that about 3,200,000 persons are covered by government plans already established in four provinces. Voluntary hospital insurance was virtually non-existent in Canada in 1940. Relatively, its remarkable growth in our country falls just short of its growth in the United States. There are regional differences in the proportion of population covered by voluntary hospital insurance. In the province of Ontario—incidentally, for those of you not familiar with the political subdivisions of Canada, Ontario is a central province containing one third of the country's population whose prosperous economy produces one half of Federal revenues—in the province of Ontario upwards of 75 per cent of the population have hospital insurance. In the second largest province in point of population—Quebec—3 5 per cent are so insured. In the four Atlantic provinces, one person in four is insured, and in Manitoba, immediately to the west of Ontario, 55 per cent are insured. The three westernmost provinces have government plans and consequently the field for voluntary insurance is greatly reduced. For instance, in British Columbia, our Pacific province, 5 per cent of the population have voluntary insurance supplementing their basic government benefits. Y o u will find as I tell my story that Ontario has played a key role in the recent developments in the field of government hospital insurance. Yet the voluntary agencies have played a relatively important role in financing Ontario's hospital care. T o illustrate, here are some 1954 figures, the most recent available. The provincial and municipal governments, through payment for indigent care and other grants and workmen's compensation, paid just under one quarter (24 per cent) of the expenses of the public hospitals. O f that part of the bill paid by individuals, 39 per cent was paid by Blue Cross, 24 per cent by insurance companies and some small cooperative plans, and 37 per cent by individuals directly or through donations. HISTORY OF GOVERNMENT HOSPITAL INSURANCE PROPOSALS

Canada is a confederation of ten provinces or states and two territories. Under our constitution, the British North America Act of 1867, the Federal government at Ottawa can contribute to the health and welfare of Canadians generally but only through financial and advisory assistance to the provincial governments. All four of Canada's national political parties many years ago declared themselves in favor of some form of government assistance in the financing of health services. Commencing with a declaration by the National Liberal Convention in

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1919, the parties have repeatedly committed themselves to support "health insurance" in one form or another. While the term "health insurance" has not been specifically defined, these commitments have generally taken the form of support by the Federal government of "a contributory health insurance plan" administered by the provinces. Following World War I, government health insurance was given serious but generally unproductive consideration in Canada's western provinces. Provincialmunicipal hospital plans were inaugurated in the rural areas of Alberta; and in Saskatchewan municipally-financed medical plans were created in some districts. All other moves proved abortive. British Columbia established a royal commission to study and report on health insurance. The report was not made public. In 1932 a second commission recommended the adoption of "compulsory health insurance for all employed persons in receipt of an annual income up to $2,400 and voluntary admission to the scheme of other persons who wish to enter." Legislation was passed in 1936 to implement this recommendation but opposition developed and it has never been made effective. In Alberta, legislative committees reported in favor of a "health insurance" plan in both 1928 and 1932 but no affirmative action was taken. In Manitoba, it was recommended by a legislative committee in 1931 that a commission be appointed to formulate a health insurance plan but the commission was not named. In 1934, Newfoundland, then a Crown Colony of Great Britain, established its Cottage Hospital Plan which still provides medical and hospital services to the province's outports. These outports are mainly outlying villages of fisherfolk accessible only by water. Entitlement to benefits requires the payment of a modest contribution but the plan is heavily subsidized out of general provincial revenues. The Federal government first became directly involved in health insurance during the Beveridge era in 1943. Numerous organizations, including the Canadian Medical Association and The Canadian Life Insurance Officers Association, appeared before a Parliamentary Committee in support of the principle of a proposed government hospital and medical services plan. The Committee recommended that legislation be submitted to a Federal-Provincial Conference. Such a conference was convened in 1945 and had before it many detailed "proposals" by the Federal government, including a specific offer to bear a substantial share of the cost of provincial health insurance programs. However, the conference failed to agree on other matters and none of the 1945 proposals was therefore adopted. The next development occurred in 1947 when Saskatchewan, under a socialist government which is still in power, established a compulsory hospital insurance plan providing standard ward care for all residents of the province. In addition to tax premiums, one third of the province's 3 per cent sales tax is earmarked to help finance the plan. Later in 1949, a universal ward-care hospital plan was adopted

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in British Columbia by a Liberal-Conservative coalition government. Premiums were collected until 1954 when the premium system was dropped (perhaps "broke down" is a better expression) and the province's 3 per cent tax was raised to 5 per cent, the increase being allocated to the hospital insurance plan. The plans of both British Columbia and Saskatchewan require additional financial support from general provincial revenues. In 1948 the Federal government (which has been Liberal since 1935) announced its offer of a series of health grants to the provinces and stated that they constituted the first stage "in the development of a comprehensive health insurance plan for Canada." In 1949, the hospital plan in effect in most of the rural areas of Alberta was extended to the cities. Participation is compulsory for ratepayers. Non-ratepayers may enter the plan on a voluntary basis, and I might inteiject, it seems that surprisingly few have taken advantage of the attractive "premium" rate. The Alberta plan is presently being amended to include all citizens whether urban or rural, ratepayers or non-ratepayers. The province is today so wealthy from oil and gas revenues that it could easily finance a universal plan without Federal aid. With regard to the health insurance field, while none of the political parties had retracted from its earlier commitments, the period from 1950 to 1955 was one of relative quiescence with no significant action being taken by either the Federal government or any provincial government. I might mention at this point that while I have concentrated on the subject of health insurance, Canada had since 1940 embarked on other sizeable social welfare programs—for example, unemployment insurance, family allowances paying all mothers a flat monthly sum per child, old-age security pensions to all over seventy years, and old-age assistance pensions for needy persons aged sixty-five to sixtynine. THE EVENTS OF I 9 5 5 ~ I 9 5 7

In the winter of 1954-55, it w a s proposed that a Federal-Provincial Conference be called to consider unemployment and a number of other pressing questions that required attention. A preliminary meeting to settle the agenda was held in April 1955, and the Premier of Ontario urged at that time that "health insurance" should be included for discussion. The Premier then returned home, won an election and retained as advisor a university professor who had been closely associated with the early stages of the Saskatchewan Hospital Services Plan. At the Conference in October, Ontario submitted five "study documents" dealing with: (a) A plan for diagnostic services; (b) A home care plan; (c) Assistance in meeting extraordinary hospital costs ;

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(d) A maternal hospital care program; and (e) A full hospital insurance plan to be implemented by stages. No decisions were reached at the Conference with respect to the Ontario "study documents" but a Committee of Ministers of Health and Finance of the Federal and provincial governments was established to give the whole matter further consideration. The Premier of Ontario has since stated that in his initial thinking he favored a plan covering only catastrophic expenses. However, when the Committee of Ministers met in January, 1956, Ontario presented a modified proposal in which it placed the major emphasis on the inauguration of a comprehensive hospitalization plan, including the provision of diagnostic service on both an in-patient and outpatient basis. At the conclusion of the meeting, the Federal government made this concrete offer of assistance1 : (a) The Federal government to contribute toward the cost of provincial government plans providing standard ward hospital care and laboratory and radiological diagnostic services; (b) "Shareable" costs for Federal purposes not to include the cost of care for mental and tubercular patients, provincial administration costs, nor the capital cost of maintaining hospitals such as depreciation, interest or debt charges. In addition, amounts paid by patients through deterrent or co-insurance charges as well as workmen's compensation insurance claims to be excluded from "shareable" costs; (c) The Federal government to contribute on the following basis in respect of those costs that are determined to be "shareable": (1) 25 per cent of the average per capita shareable costs for hospital services in Canada as a whole; plus (2) 25 per cent of the average per capita shareable costs in the specific province multiplied by the population covered; and (d) Federal participation to be conditional upon six or more provinces having a majority of the Canadian people being ready to proceed with an approved hospital insurance plan.

Several features of the Federal government's offer merit special comment. First, the condition that provinces representing a majority of the Canadian people must undertake to inaugurate plans meant that either Ontario or Quebec, our most populated provinces, must agree to participate. So far, Quebec seems to have taken a very passive interest in the proposal as it has in other Federal offers of financial aid and hence Ontario occupied the " k e y " position. Second, it is of interest to note that the ingenious formula devised for apportioning "shareable" costs would bear with different weight on different provinces. In four provinces—British Columbia, Alberta, Saskatchewan and Ontario—where the per capita cost of hospitalization exceeds the national average, the Federal participation in "shareable" cost would be something less than 50 per cent; in other provinces whose per capita 1

House of Commons Debates, January 26, 1956.

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cost is below the national average, the Federal contribution would range appreciably above 50 per cent and as high as 72 per cent in the case of Newfoundland. Third, y o u may be interested in the cost and tax burden involved in the Federal proposal. If the proposed plan had been in effect in 1956 in all provinces, it is estimated it would have cost about §400,000,000. This is about 60 per cent of Canada's total hospital bill when the bill is taken to include private and semi-private care, mental and tubercular hospital care and capital outlays for hospitals. All levels of government are presently providing some services that would come under the proposed plan. After offsetting current Federal outlays for those services, the cost of the plan to the Federal treasury would have been $ 1 7 0 million in 1956. This would have been on top of $ 9 1 9 million actually expended on family allowances, old-age pensions and other health and welfare commitments which in total amount to one fifth of total Federal expenditures of $4.8 billion. These figures may not seem large to residents of the United States w h o are familiar with $72 billion Federal budgets. However, if w e inflate the Canadian figure by the ratio of the U . S . gross national production to ours, the Canadian Federal budget for 1956 would amount to 566 billion. For the four provinces that n o w have their o w n hospital plans—Newfoundland, British Columbia, Alberta and Saskatchewan—the Federal contributions would in 1956 have constituted a " w i n d f a l l " of $ 1 9 million. For the remaining six provinces after offsetting amounts presently expended by the provinces and their municipalities for the hospitalization of indigents, the plan would have required new expenditures by them of about $94 million. This sum amounts to 31 per cent of the 1956 health and welfare expenditures of the six provinces and one sixth of their total expenditures. I have differentiated above Federal expenditures and provincial expenditures. I do not overlook the fact, as I am afraid some Canadian government officials often do, that the Federal taxpayer is one and the same person. T h e Ontario government, having sponsored the hospital insurance proposal at the Federal-Provincial Conference, then had no alternative but to request the Health Committee of the Ontario legislature to explore the possibilities of establishing a plan. Before the Committee, representatives of the Ontario Hospital Association (also speaking for the Blue Cross) and the Ontario Medical Association endorsed the principle of a universal government ward-care plan. T h e position taken by the life insurance companies is stated in the following quotation f r o m a submission made to the Ontario Health Committee (March, 1956) 2 : In framing a plan to aid in the financing o f health costs it is not desirable, in the public interest, to establish a compulsory g o v e r n m e n t hospital insurance plan and to ignore the 1 Stenographic Report of the Meetings of the Standing Committee on Health of the Ontario Legislature, Second Session of the Twenty-fifth Parliament, March, 1956.

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demonstrated ability and willingness of most of our people to insure themselves voluntarily with private health insurance agencies. 70 per cent of the people of this province have done this at no cost to this government or to the Federal government or the municipal governments. This voluntary insurance is in many respects better than the proposed government plan. If government action is needed, it should supplement, not supplant, private insurance.

In support, the submission went on to emphasize the future "pressure on government revenues . . . for services only the government can provide" and dealt with other serious implications of the proposal. The companies also expressed the hope that the best possible solution might be found to the complex matter of financing hospital costs, and, with this objective in mind, subsequently developed an alternative approach to the problem. The rationale of the alternative plan is that governments should focus their attention only on those who cannot help themselves, leaving the bulk of the population to continue providing for its active treatment hospitalization either directly or through the insuring agency of its choice. The government would provide care for the indigent: the mentally or physically impaired, including the aged, not covered by group insurance; and those requiring long-protracted hospitalization not covered by present government programs. In Ontario a plan covering all these areas of need would involve less than one third the additional taxes that a universal plan would require. Despite this advantage, the alternative plan has fallen on deaf ears at the Federal and provincial levels of government. British Columbia, Alberta, Saskatchewan and Newfoundland accepted the Federal offer early this year. As I have pointed out, having plans of their own already in force, the offer of financial assistance is really "manna from heaven." In March the Ontario and Federal governments settled some matters of interpretation respecting the Federal offer and Ontario promptly passed legislation empowering its Hospital Services Commission to administer the proposed plan. With these five provinces committed, the Federal government embodied its offer of a year ago in the "Hospital Insurance and Diagnostic Services Act." In April the required sixth province, Prince Edward Island, announced its intention to participate. What about the four remaining provinces ? New Brunswick, with legislation passed in 1956 enabling the government to participate without further action by the legislature, may be next. Manitoba is wary of a "first dollar" plan and this spring passed legislation providing for a form of catastrophic cover. After a patient has been hospitalized for 180 days in a twelve-month period, his subsequent hospital charges will be paid by the provincial government. This plan, of course, is not eligible for Federal assistance. Nova Scotia has been following developments with considerable interest but so far has not committed itself.

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Quebec, jealous of its provincial rights in the fields of health and education, continues to remain aloof. However, if the other nine provinces participate, Quebec will find it difficult to stay out. That is the situation today. The Two "Prime

Movers"

There have been two principal players upon the stage—both capable, astute, successful veterans in the political field; both convinced of the desirability of the "great objective of human betterment"; and both aware to some extent of the economic inplications of the experiment. Premier Frost of Ontario, a Conservative, surprised almost everyone by seizing the initiative in the matter and I have already referred to his role several times. The second " k e y " figure is the Honorable Paul Martin, Minister of National Health and Welfare. He would, I think, agree that he is a liberal Liberal. The withdrawal from the Federal cabinet three years ago of several senior Ministers whose views are to the right of Mr. Martin's brought the latter increased seniority and influence. These two leaders use the same arguments in support of a government plan. Here are excerpts from the Ontario Government's press release on "Hospital Care Insurance for Ontario" (dated January 29, 1957): Our hospital insurance plan will afford basic coverage limited to public ward care, though additional coverage and benefits may be obtained from private insurers. There will be no cancellation of or time limit on the protection provided under our proposal. Where hospital care is necessary there will be no limitation as to duration of stay, age or disability. . . . Such coverage is not available at present in this Province. . . . The plan we propose will be available to every citizen who enrolls. . . . Our proposal. . . will eliminate hospital deficits. . .

Mr. Martin said substantially the same words in the House of Commons on April 10, 1957. The Public Attitude

First let me make one or two points about the Canadian attitude toward government in business. It has been said that the United States got people first, then its government whereas Canada got government first, then its people. Canada has been forged in defiance of geography and lack of population. Traceable to these circumstances is the fact that the Canadian government owns and operates one of the country's two transcontinental railways, the only east-west airline, the only television network and the only two radio networks. More than half Canada's hydro-electric power is supplied by publicly-owned utilities. In the insurance field the Federal government sells annuities and provincial governments run workmen's compensation plans.

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I think it is fair to say that, generally, these operations have public confidence and acceptance. Moreover, the Civil Service enjoys a continuing respectability in Canada so that the public, relying on parliamentary control, has been willing to entrust it with wide responsibilities. Of course, there are important and vociferous elements in every country who favor ever-wider social welfare measures because they think the measures are being paid for by someone else's taxes. Also, there are proponents of social welfare measures who base their case on humanitarian grounds that are hard for many people to resist. Unfortunately emotionalism is one of prime motivating forces in our world today. Moreover, it is easy for numerous people, proud of the progress and prosperity of their country, to conclude that anything is possible and to decide that their nation can carry indefinitely an increasing roster of good works. Having said this, let us look at the results of a survey reported in September, 1956, by the Canadian counterpart of the Gallup Poll. When asked: "Would you favor, or oppose, a government-operated plan whereby any hospital expenses you or someone else incurred would be paid out of taxes," 72 per cent of those polled stated they were in favor, 21 per cent were opposed and 7 per cent were undecided. In Ontario, where over 70 per cent of the people have voluntary insurance, 69 per cent were in favor. Those in favor were then asked if they would continue to be in favor even if it meant higher taxes; 14 per cent changed their mind and said " N o " and 6 per cent became undecided, leaving only 52 per cent still in favor. This could not be interpreted as a "clamor" for a government plan. On the other hand, the only organizations voicing opposition to the plan have been the Canadian Chamber of Commerce and some of its provincial bodies and the insurance companies. The Medical Profession Those of you from the United States, aware of the vigorous stand of your medical profession against government interference with the carrying out of its responsibilities, naturally ask why the profession in Canada would endorse a hospital plan which, in the minds of many, is but a stage in the development of a complete health services plan. M y best reply is to quote from an article by the General Secretary of the Canadian Medical Association (Dr. A. D. Kelly, Canadian Medical Association Journal, May 1, 1956): What is or what should be the attitude of the Canadian Medical Association to this development ? In our previous pronouncements . . . we have given first priority to the provision of a means to cover the costs of hospital care. We have regarded with favor the extension of such coverage through the familiar agencies of the voluntary plans and we have noted the generally satisfactory experience of our colleagues in Saskatchewan and British Columbia with the universal hospital plans of those provinces. It would appear logical, therefore,

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that w e should welcome this extension of the benefits o f hospital care insurance to the residents of all provinces which decide to participate. A s taxpayers w e m a y regard with some apprehension the prospects of mounting costs of such a service, and as the custodians of the right and obligation to admit and discharge patients w e may be conscious of the pressures which may be engendered and sensitive to our responsibilities. W e may further entertain some doubts that the medical training o f the undergraduate and graduate level may be assisted b y these developments and w e foresee that the pattern o f medical practice may be altered. Despite these doubts, w e console ourselves with the hope that the economists of government k n o w what they are doing, and that in the universal application o f hospital care insurance the benefits to our patients will outweigh the difficulties which w e perceive.

Despite this clear statement on the hospital insurance issue, there is increasing evidence that the profession is alert to the dangers of government encroachment beyond the hospital field. The Ontario Hospital Association The life insurance companies have been able to cooperate with the hospital associations in several fields of mutual interest in recent years. For example, there is a standard hospital admissions and claims procedure in respect of all patients having group insurance, in operation in all but the three western provinces. This procedure could not have been devised or have continued to run smoothly without the cooperation of the hospital associations. On the other hand, the chief officers of the Blue Cross and the Ontario Hospital Association have been close to the Ontario government ever since Premier Frost "invited" them to the Federal-Provincial Conference in October, 1955. The brief of the Ontario Hospital Association to the Ontario Legislative's Health Committee endorsing a government hospital plan was presented by the then Executive Secretary-Treasurer of the O . H . A . Three months later the same gentleman was appointed Chairman of the Commission set up to administer the plan. Premier Frost of Ontario has from the beginning been committed to a premiumpaying type of plan despite the fact that British Columbia had to abandon premiums as a source of revenue. Seventy per cent of Ontario's population is accustomed to paying premiums and the Premier has preferred this form of direct taxation to the alternative of a sales tax. The original "study documents" and the present enabling legislation have provided that private insurers as well as Blue Cross may be used to operate the Ontario plan. From the Premier's latest statements it appears that the intention is to contract with Blue Cross to run the government's operation. Such a procedure would create the very vital issue for insurance companies, the medical association plans and the numerous rural cooperative plans as to whether Blue Cross will be permitted to continue to sell supplementary benefits as well.

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The Need for Research Are the Canadians who favor a government hospital plan fully informed as to Its implications ? The answer is No. The Minister of National Health and Welfare has published cost estimates only for 1956 and added a postscript that the figures would likely rise 10 per cent to 13 per cent a year because of population growth and rising hospital costs. These estimates ignore the administrative and depreciation charges which are to be borne by the provinces. Ontario has published estimates for the province projected through to i960. These are the only estimates as yet published. Of course, in British Columbia, Saskatchewan and the United Kingdom, advance estimates fell short of first-year outlays. In no case has any government attempted to estimate the additional capital expenditure resulting from the institution of government plans. Inevitably there will be a great demand for more hospital beds and more housing for larger hospital staffs, and some hospitals have voiced concern that private philanthropy for hospital construction will dry up to a great extent. Also, there are the all-important, long-run implications of the plan. H o w is the nation to carry the future burdens of the scheme? How far are its foreseeable outlays competitive with other requirements (private and public) ? To what extent are such enlarged patterns of government expenditure consistent with a continuation of our post-war rate of economic development ? At what point do redistributive programs dry up the springs of national effort ? These are fields of economic study deserving urgent attention. If the long-run burdens of the government hospital plans are carried successfully, it will not be because they have been clearly foreseen and prepared for. CONCLUSION

At the outset I referred to two visions of half a century ago—the one of growing economic wealth, the other of growing social welfare. While all Canadians will subscribe to the humanitarian motives behind government social welfare schemes, the economic implications must not be overlooked. Social welfare expenditures can be expanded to a level where they definitely impair work incentives, incentives for saving and investment and generally the expanding productivity of our Canadian economy on which all our economic security basically rests. There is some evidence that Canada may soon reach that danger level. There can be no hand-outs without hard work; no welfare without wealth. To impress this fact upon all who can be made to listen; to forestall pressures that governments unnecessarily assume new roles to the neglect of their present heavy responsibilities—this is the charge and the challenge for all who see "free enterprise" as the key to prosperity.

PART VI Trends in Marketing

United States : Marketing Trends in Life Insurance by W a l t e r

Klem*

Taken in its broadest sense, the term "marketing" in connection with any sort of commercial enterprise encompasses a long succession of processes, starting with the identification of some need or desire and ending with the sale of a corresponding product or service. At its outset, it may involve recognition of an existing need or desire which is not yet fully satisfied, or the forecast of a change in the public's tastes or requirements, or the creation of a new demand of some kind. Next comes the setting of specifications which, hopefully, will result in an invention, a design, or an adaptation of a product or service to produce a new, or better, saleable commodity. Then the marketing process becomes concerned with the methods of distribution. If, for example, distribution is to be accomplished through the use of salesmen, the marketing problem involves questions of their selection, training, supervision and financing, in addition to such matters as advertising and promotion. All of this applies in connection with life insurance, but for the purpose of this paper I shall take the term "marketing" in a narrower connotation. M y remarks, which are limited to a fraction of the total process, will deal with some of the ways in which life insurance companies in the United States have recently adapted their services to fit the changing times. W e have to recognize that the field in which U.S. life insurance companies operate is governed by law. The basic kinds of services that we can provide are primarily those arising out of the contingencies of death, disability, sickness, and accident. Out of the mathematics of these life contingencies, combined with the interest rate, the life insurance business has evolved a tremendous variety of coverages and methods of payment for such coverages. It is remarkable how much change is still possible after a period of almost two hundred years since modern life insurance started with the Old Equitable of London. In our free society the existence and continued acceptance of the services offered by Ufe insurance companies is a vital force in the nation's economy, but that force is far from dominant. For example, practically everything the life insurance companies now do is anti-inflationary. Yet this by itself will never hold inflation in check, and the development of our services is much affected by the forces that * Senior Vice President and Actuary, The Equitable Life Assurance Society of the United States.

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result in inflation or deflation. Again, w e may believe that the insuring public w o u l d be better o f f if w e developed our services along certain lines, but if the impact o f our tax laws creates inducements for development along other lines, the forms which these services take are bound to be affected. As I proceed to comment briefly on a number o f changes that are n o w taking place, it will be apparent that they stem from the many influences that shape our economy, and are less the result o f spontaneous invention than o f evolutionary adaptation.

PREMIUMS GRADED BY SIZE OF POLICY

T h e laws o f our different states do not directly regulate the premium rates that may be charged for individually issued life insurance and annuity contracts, and on the whole this is true for the other types o f contracts issued by our life insurance companies. B u t most o f our states have on their statute books a law that prohibits discrimination in the amount o f premiums charged or dividends payable as between individuals o f the same class and o f equal expectation o f life. Until very recently this law was quite generally interpreted to bar any differentiation in unit premium rates by size o f policy. This was so notwithstanding the fact that for group insurances and group annuities, and for various kinds o f insurance not issued by life insurance companies, the size o f the policy, with its effect on unit expenses, was regularly recognized as part o f the premium structure. As a consequence o f this long-held interpretation o f the law as it applied to ordinary business, there gradually grew up in this country a rather general company practice o f including, in the list o f policies for issue, one or more so-called "special" policies. T h e special policy differed, at least slightly, in its benefit or premiumpaying provisions from any other contract issued by the company, and was offered only in some fairly high minimum amount. This made possible a relatively l o w premium rate for the "special," in comparison with the rate for other policies o f the same company providing almost identical benefits. Sometimes, these special policies were issued only to a preferred class o f risk, resulting in a further contribution to the premium reduction. Recently, as more and more companies commenced the issue o f special policies under the force o f competition, this w h o l e basis came to be re-examined. A n important turning point was reached in 1955, when the N e w Y o r k Insurance Department ruled that variation in size o f policy could in itself justify variation in premium rates. Since then other states have ruled similarly, and commencing in 1957 t w o companies doing business on a nationwide scale introduced graded premiums for practically all the plans o f insurance they issue. In those t w o instances the plan adopted was to establish premium rates that differed for each o f three size bands o f face amount (up to $5,000; $5,000 to $9,999; and $10,000 and over). Another company that does business in many states is using a basis that, except for quite

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small amounts, results in continuous reduction in premium rate as the size of the policy increases. The general adoption of graded premiums in the United States is, I think, only a matter of time. One fairly serious question for some companies will be what to do in the field of the very small size policies. Many companies that are not doing an industrial business have been issuing ordinary policies for as little as $ 1,000 face amount which, under present levels of expense, would require an increase in premiums that many would consider prohibitive if the policies were to be completely self-sustaining. One solution is simply to fix a higher minimum amount of issue, such as $2,000 or $2,500, and abandon the market for very small policies to the companies which choose to remain in that field. The other solution may be to hold down the increase in premiums as much as possible by simplifying the contract, streamlining the underwriting and administrative procedures, and generally cutting costs by elimination of options, extra benefits, and extra services that are not essential for very small amounts. Grading of premiums by size also carries with it the question of the equitable treatment of women. The broad justification for charging both sexes the same premium rate, despite the lighter mortality among women, has been the additional administrative expense rate arising from the smaller average size of the policies that women purchase. Since that justification does not exist when policies are graded b y size, a few companies have introduced a lower scale of premium rates for female purchasers of graded premium or high minimum amount "special" policies. This practice is likely to grow as graded premiums take hold. While representing nothing new in life insurance outside of the United States, the introduction of graded premiums represents for us a fairly fundamental change. Some years must elapse before it will be possible to gauge the full effect of what has been started. MONTHLY PREMIUMS

Another trend which is clearly discernible in connection with ordinary insurance is the increasing popularity of monthly premium payment. This trend, of course, is part of a broader phenomenon of the times: every year, more people are buying more kinds of goods and services under monthly budgeting schemes, and it is no surprise to find life insurance falling into the pattern. There may be economic aspects of installment buying which some in the life insurance industry do not altogether like, but the marketing of our product must remain in tune with the public's buying habits. W e have had the monthly premium option available as a standard feature of our contracts for those w h o wanted it, and w e are now seeing it used for an increasing proportion of our business. Aside from the single premium policy, with its specialized area o f usefulness, periodic payments are a basic part of the life insurance structure. For us, the

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shift towards monthly premiums represents only a choice of one frequency of payment as against another—not, as is the case with installment buying generally, the substitution of a credit arrangement for what would otherwise be a one-sum purchase. The shift, however, is not entirely without its dangers. Higher lapse rates, which raise insurance costs for everyone and which often represent much needed protection lost almost as soon as it is gained, are a familiar and unfortunate part of monthly premium business. When a large policy can be put in force with a relatively modest payment, the danger of overselling increases. Still, the trend is with us, it is a "natural" in the framework of our present economy, and it is one to which we are going to have to adapt ourselves increasingly in the future. The growing proportion of monthly premium business undoubtedly comes in part from people who would once have been industrial insurance policyholders and who now, with higher income levels, can move into the ordinary market. At the other end of the scale, it reflects a change in the point of view of many who find it worthwhile to pay extra for the convenience of monthly payments, even though a quarterly, semi-annual or even annual premium would be within their reach. If it were not for the extra cost involved, it is probable that a much larger proportion of our business would be written today on a monthly premium basis; certainly any stigma which may once have been attached to monthly premiums is now a thing of the past. With these changes, the companies have recently looked to the administrative arrangements for monthly premium business with renewed interest. New and more streamlined collection arrangements have been developed, and the practice of sending a book of remittance coupons once a year and eliminating receipts for mail remittances has become widespread. Such changes tend to reduce the unavoidable extra handling costs involved, and thereby make it possible to reduce the differential in cost which the policyholder must pay if he wants to avail himself of the monthly premium plan. At the same time, some companies have further reduced this differential by providing that a pro-rata refund will be made upon the insured's death if an annual, semi-annual, or quarterly premium has been paid, thus putting all modes of payment on essentially the same footing in so far as the mortality risk is concerned. An interest differential remains, and it is doubtful whether any monthly collection system can be devised which will be as inexpensive as annual collection, but there is no doubt that more and more is being done to diminish the disadvantages of the plan which fits best into modern budgeting practices. Nor has this movement been confined to improvements within the framework of our traditional, direct-collection practices. Greater emphasis is being placed on salary savings or payroll deduction plans, in which an employer withholds premiums designated by his employees and remits them once a month to the insurance company with a single, consolidated statement. Similarly, there has recently been a surge of interest in the "preauthorized check plan," the latest in the long series of

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plans which have been developed for collection through the policyholder's bank account without the need for specific action each month on his part. Some of the popularity of this latter plan has been due to essentially extraneous influences, including the practice of "annualizing" agents' commissions, but it seems clear that much of it is genuine. Whatever can be done in a sound way to make monthly payment of life insurance premiums more convenient and more economical will, in today's market, strike a responsive chord.

INDUSTRIAL INSURANCE

I have already made passing reference to the effect of our expanding economy on the market for industrial insurance. This part of our business, traditionally based on the collection of premiums by the agent at the policyholder's home, has served the needs of those who could afford only very small amounts of insurance. As the general economy of the country developed, many of the people for whom industrial insurance was created were able to purchase larger policies, and extension of the industrial premium collection system to monthly premium ordinary insurance flowed as a natural development. In recent years a number of leading companies in the field have taken steps to accelerate this transition, and some have shown a marked decrease in their industrial business with a corresponding rise in their ordinary operations. When we look at statistics for the industry as a whole, we find industrial insurance gradually becoming a smaller proportion of total new insurance written. Quite in contrast with other forms of life insurance, the aggregate amount of new industrial insurance purchased has shown no appreciable increase for the last three years. It has always been a characteristic of industrial insurance that small, separate policies are bought on the lives of the wife and children in a family to supplement the basic protection afforded by insurance on the wage earner himself. With the gradual shift away from industrial insurance, an interesting current development is the introduction in the ordinary field of a package policy to cover the husband, wife and children under one contract. A substantial expense saving is realized in this way as compared with the cost of a separate policy on each member of the family, so that only a modest extra amount of premium is needed to provide the coverage on the wife and children. The typical unit family policy provides $5,000 of insurance for the husband and $1,000 of insurance for each child. The amount of coverage on the wife shows a good deal of variation, ranging from less than $1,000 to over $2,000, the exact formula varying from one company to another. Even a single unit of such a policy provides a degree of protection which represents a distinct step forward compared with the amounts of insurance that have been typical of industrial policies.

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Even if, with these changes, the term "industrial insurance" comes to be less used, there will still remain a need for insurance in modest amounts at reasonable rates. It will be interesting to watch the evolution of this part of our market in the next few years. GROUP ANNUITIES

It was in the 1920's that a few life insurance companies started to make available to employers a means of providing pensions for their employees. Under the group annuity contract as it was developed at that time, each monthly contribution received on behalf of an employee was applied as a single premium to buy a paid-up life annuity commencing at that employee's normal retirement age. This type of group annuity contract, which is still regularly issued, is customarily referred to as deferred annuity. Usually the insurance company guarantees the premium rates for the first five years of the contract, and has the right thereafter to revise the rate basis in respect of new monies to be received. This contract has the great advantage for the employer and his employees of fixing with certainty the exact amount of each employee's pension that has been accrued and funded at any time, and of having the guarantee of the life insurance company behind pension credits which are built up in a definite way during the employee's working years. Today more than 70 per cent of the reserve liability held by life insurance companies for pension plans is for contracts of the deferred annuity type. However, the pattern has been changing, and recently our business on the form of group annuity contract known as deposit administration has been growing relatively faster. The deposit administration contract involves accumulation at interest of whatever premiums are paid by the employer into a fund, with no allocation of those premiums to individual employees before retirement. As an employee reaches retirement age a single sum amount sufficient to provide his pension is allocated. The rate of interest at which the fund is accumulated, and the single premium rates on the basis of which life annuities are set up at retirement, are customarily guaranteed with respect to the premiums received in the first five years of the contract, with the right to the company to make revisions thereafter. Under this deposit administration arrangement the employer obtains flexibility with regard to the amount of money he sets aside periodically for pension purposes but, as compared with deferred annuity, he has no guarantee that the amounts paid into the fund will be sufficient to carry out his plan of pension benefits. The arrangement is also suitable, where the deferred annuity is not, if the formula for the pension benefit is one in which the amount of pension accrued at different points of time cannot be precisely stated, as for example when the benefit formula is based on final pay or contemplates an exact offset for social security income. The vigorous competition that exists today in the field of private pension plans

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is not only between different life insurance companies but between those companies and the banks which handle trusteed pension plans. The banks advocate that the employer utilize the services of a consulting actuary to advise about the terms of the retirement plan and its cost, and the services of a trust company to invest the pension funds under the terms of a trust agreement drawn by the employer. Among the advantages that could once be claimed for the self-administered plan were the absence of compulsion on the employer to meet fixed premium payments in good and bad times, and the ease with which it would accommodate pension formulas of the final salary type. Today the insurance companies have the deposit administration contract with which to meet these arguments, and in fact its growth in popularity has largely been due to competition with trusteed plans. An appreciation of the pros and cons of insured and trusteed plans requires considerable study. Without attempting to deal with the whole matter here, there are two aspects which are important to an understanding of the climate in which our life insurance companies are operating. Under the stress of competitive business conditions, the financial officers of business organizations are understandably attracted by any prospect of high investment earnings on pension funds. The advocates of trusteed pension plans point to (1) the great freedom possible under trust agreements to make investments in equities and (2) the absence of Federal income tax, which the life insurance companies have to pay on their investment earning and which currently reduces the rate of investment return by about .25 per cent. Although the traditional deferred annuity and the more flexible deposit administration contracts of the life companies are well suited to meet most of the demands in the private pension plan market, some students of private pensions believe that the life insurance companies should seek radical change in the present laws governing their investments. This would include authority to invest substantially in equities and to segregate investments for pension business. While some go farther and would espouse legislation permitting the writing of variable annuities, others consider that this would be of relatively little importance if the other changes were achieved. Life insurance people generally, and many others who understand the subject, are agreed that eliminating the tax discriminations between insured and trusteed plans is imperative for the continued healthy growth of insured pension plans. Employers have been taking on more and more responsibility for the financial working out of their pension plans—perhaps unwittingly in some cases. Time will eventually reveal whether this has been well advised or whether people would be better served by a swing back to the use of the guaranteed deferred annuity. In any event, the life insurance companies, operating within statutory limitations but with resourcefulness and ingenuity, may be expected to continue to serve the private pension plan market in a substantial way. 10

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W o r l d Insurance T r e n d s MAJOR MEDICAL EXPENSE INSURANCE

For many years, the life insurance companies have played a prominent role in furnishing accident and sickness coverage of all kinds through their writing of group insurance. Some Ufe companies, too, have long been prominent in the individual accident and sickness field, and recently many others have joined their ranks. Today, no survey of marketing trends in the life insurance business would be complete without mention of current developments in the accident and sickness area. One of the current developments is a gradual improvement in protection against loss of income, with broadening terms of coverage and extended boundaries of eligibility for the physically impaired. More sweeping, however, is the change which is taking place in connection with protection against the out-of-pocket expenses of accident and illness. This change has come about through the development of major medical expense insurance, which, originally introduced on an experimental basis less than ten years ago, has grown very rapidly as a group coverage and has become quite generally available for direct purchase by individuals for themselves and their families. The general nature of major medical insurance is now well established. It is built upon a "deductible" and a "coinsurance" provision, to eliminate coverage of expenses at the routine level, where personal budgeting is more economical than insurance, and to leave the insured with some personal incentive to control the size of his bills when larger expenses are incurred. It has high maximum payment limits, so that it will provide adequate protection when protection is most needed, and to the greatest possible extent it is free from "internal" limits and restrictions. Until quite recently, major medical coverage fell into two fairly well defined categories. In the one case, it was superimposed upon the standard package of basic hospital, surgical, and medical expense protection—insured or Blue CrossBlue Shield—to pick up where those coverages left off. This provided the needed major expense protection, but produced a complicated over-all coverage and a costly one, with "first-dollar" protection still a part of the whole. In the other case, major medical stood by itself, with a fairly high deductible, furnishing an appropriate coverage for those with substantial incomes but with more limited appeal at the lower end of the income scale. Currently, there is growing interest in providing a single, comprehensive plan in major medical form and with a deductible low enough to make a broad appeal at all income levels. Sometimes designated simply "health care insurance," and sometimes dubbed "minor-major medical," this development seems most promising and likely to make considerable headway in replacing older compartmentalized forms of coverage. Many variations are being tried, and the field is still very much in the experimental stage, but the experimentation is now more at the level of

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benefit patterns and details than at the level o f concepts. Group insurance is carrying by far the greatest share o f the experiment, but it may well be that corresponding developments in individual coverage will continue to follow at a slower pace.

EXTENSION OF GROUP INSURANCES T O PROVIDE LIFETIME COVERAGE

Originally group life insurance was conceived as a form o f term insurance which expired when the employee retired or otherwise left his employer's service. Although the employee had (and still has) certain contractual rights to convert the term insurance without medical examination, the premium for an individual policy at an advanced attained age is naturally high. B y the age o f retirement it is generally regarded as prohibitive and consequendy only a relatively small number continue their protection in this w a y . It is not surprising therefore that there developed a growing desire on the part o f employees and labor unions to have at least some part o f the group insurance continued after retirement. The extent to which this has already been accomplished in the field o f group life insurance may not be generally appreciated. In one company—it is among the largest carriers o f group insurance—almost 20 per cent o f the face amount o f group life insurance presently in force is under contracts that provide for the full amount o f the employees' coverage at retirement to be continued thereafter. A b o u t 70 per cent has provision for continuation in a reduced amount, and only a little over 10 per cent o f the insurance is under contracts that provide for termination at retirement. In the field o f group hospital, surgical, and medical expense insurance w e have not yet experienced anything like the same high proportion o f continuance after retirement that has occurred with group life insurance. Also, when coverage is continued, it is less often for the full scale o f benefits. Nevertheless, the present trend toward continuance o f at least a portion o f the coverage is significant. Frequently, if the coverage during working years consists o f hospital, surgical, and medical expense benefits, only the hospital coverage will be continued, either on the same or a reduced scale. Sometimes a reduced schedule o f surgical expense benefits is also continued. Alternatively, where the kind o f comprehensive health care insurance already mentioned is in effect, this may be continued after retirement in the same f o r m but perhaps with somewhat reduced benefits. T h e immediate financial effect o f extending group coverages to retirement years can be practically negligible if the extension is not made applicable to employees previously retired, or if the company whose employees are covered is too young to have a mature w o r k force. However, as the pensioners g r o w in number and become an increasing proportion o f the total persons covered, the term premiums will reflect the steeply increasing cost o f providing death benefits or health care benefits at the older ages o f life. This is w h y so many o f the extensions

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are for a reduced scale of benefits, and why there has been interest in ways and means of funding part or all of the cost of insurance for retired lives in advance. Several approaches are being used to meet this desire for advance funding of insurance after retirement. Among them is group permanent insurance which is issued on a level premium basis. Another plan is known as group term and employee paid-up insurance, which involves the purchase of single premium whole life insurance with each monthly contribution of the employee, and the purchase o f decreasing term insurance with the employer's contributions to round out the schedule of total death benefits payable during the working years. A third method, applicable to both death benefits and health care benefits, involves the accumulation of periodic advance payments in a fund that is drawn upon to meet the term premiums as they become due in respect of retired employees. The three plans are quite dissimilar in the benefits provided, involve different tax treatment, and carry different costs. Their use, however, is testimony to the fact that there is increasing general interest in finding a good solution to the problem of financing the future cost of insurance for retired employees.

CONCLUSION

The examples I have chosen to illustrate the nature of the changing scene necessarily fall short of describing all that is important or interesting. I referred briefly to the extension of group life insurance and group health care insurance coverages into the retirement years of life. I might have spoken of parallel developments in the personal accident and sickness field. The newest forms of policies being offered by some life insurance companies indicate a trend away from cancellable contracts to contracts that are guaranteed renewable, some for life, with the right reserved to the company to increase premium rates for all policies in a class but not for any particular policy by itself. I referred also to a development in group annuity contracts that gives greater flexibility to the employer in providing benefits and funding the cost of pensions. Here, too, I might have referred to the counterpart in the ordinary field. For years the companies offered individual pension trust policies that did a complete funding j o b for the insurance and retirement income involved. N o w a substantial volume of business is also written on lower premium forms of individual insurance policies that provide the insurance coverage but only a portion of the proposed retirement income, leaving the balance of the income to be provided from an auxiliary fund that is generally accumulated outside the life insurance company. It might have been appropriate, too, to spend some time on developments affecting the underwriting of risks. In the light of reducing mortality rates we have witnessed a distinct trend to the underwriting of larger amounts of individual insurance at the younger ages on a non-medical basis. Improvement in mortality

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has also helped meet the demand for increased limits of insurance in the group life area. Finally, I might have spoken at some length on the trends in general level of premium rates. W e have been operating under conditions o f an increasing net return on investments, a general improvement in mortality rates, and an increase in expenses of administration. For ordinary life insurance the net effect has been to provide a climate in which changes in gross premium have been downward. And, because of the mortality improvement, w e expect to see lower initial premiums for group life insurance made generally applicable in the early future. For immediate single premium life annuities the tendency is also toward lower premiums, the effect of the increase in investment return outweighing, for that type o f contract, the effect of the changes in mortality and expense. In the case o f deferred life annuities, the situation is more mixed. For the longer periods of deferment, projected mortality improvement counterbalances a considerable measure o f improvement in the interest rate. Costs o f providing group health care benefits tend upward, particularly in the area of hospital costs. Brief though this sketch has been, I hope that it suggests something of the feeling of most life insurance people that w e are living in one of the busiest and most interesting times in our business history.

United States : Property and Casualty Insurance by Erwin H. Luecke*

It is well recognized that in the last ten years following the enactment of the All-Industry Bills throughout the United States, new methods of distributing insurance have arisen and some in terms of premium volume alone have flourished. These methods of distribution are based on the assumption that insurance is a mere commodity to be sold by chain-store techniques at cut-rate prices. Those of us who believe in distributing our products through the American agency system believe that insurance is something more than a commodity and that a successful distribution system is measured by more than the mere premium volume. Accordingly, today I propose to discuss with you some of the new tools available which highlight the marketing advantages of the independent agency system. After all, in our business, we sell protection to businesses and individuals in need thereof. Basically, our job in distributing our product is to seek out the hazards faced by our clientele, to bring forcefully to their attention the need for the protection we offer and then to persuade them to purchase the policies we issue to cover these exposures. Reduced to these essentials, you will readily appreciate why I am concerned about the difficulty of presenting "trends in selling" as the very designation of "trends" would connote there has been a change in the way of doing our job as compared to days gone by and when a task is as basic as ours—the determining of exposures and prescribing coverage therefor—it would seem sound to observe that little that is new can actually be considered as having entered into the doing of our job. Very likely we will all, upon careful analysis, find it is the same job we have had in all of the years gone by with the only significant changes being certain tools now available in the way of new, more complete policy contracts, television as an additional advertising media, fine new sales material such as the highly successful " H o w Much Honesty Insurance ?" booklet and last, but in all probability of most importance, an ever increasing public awareness of the need for our product. NEW CONTRACT FORMS

W e should perhaps deal first with some of the new insurance contracts which are now generally available through almost all carriers. Certain new forms such * Vice President, America Fore Group. 282

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as the commercial property contract will undoubtedly have wide application although the initial usage of this particular form seems to have been concentrated to insureds who have rather generally carried much of the coverage embodied in the commercial property contract and, obviously, the form will not achieve the desired results predicted for it by its sponsors if it is merely used as a way of insuring a risk against exposures heretofore protected and at reduced premium charges. The hopes of the authors of this coverage will come into full bloom only when business firms purchase the commercial property type of coverage which have not heretofore carried, for example, stock burglary insurance and we still appear, as I have mentioned, to be applying this form to risks which receive lower premium costs by dint of selecting a policy form giving them protection equal to, and in many instances in excess of, that for which they previously paid higher individual premiums than are applicable to the commercial property coverage form. This is fraught, too, with warning signs because we have seen cases, perhaps altogether too many, where risks proved acceptable for burglary insurance, for example, only because a competent burglary underwriter worked with diligence and intelligence to make it a risk of good character and when the account was put on a "bloc" basis, the safeguards which the burglary underwriter applied— and which worked so well to keep the loss experience within bounds—were promptly "washed out" of the picture. Let me give an example to illustrate exactly what is in mind. This is the case of a chain of between 120 and 130 ladies' ready-to-wear stores which some few years ago was experiencing great difficulty in securing stock burglary insurance. Eventually a skilled burglary underwriter told the producer and the customer that he would work their risk into shape if they would cooperate with respect to safeguards he would prescribe. This chain operated on a nationwide basis with some stores relatively small, most of medium size and practically none that might be classed as large stores. In some metropolitan centers this underwriter insisted upon the installation of central station alarm systems and elsewhere, where the crime conditions were not quite as severe, he induced the installation of local alarms and in non-target areas, bars for doors, windows, skylights, etc. After four years he brought about a highly favorable condition where this chain of stores enjoyed highly preferential rates for burglary insurance. Where it had previously been difficult to induce a company to issue stock burglary insurance for them, they were by experience and schedule rate credits aggregating slightly over 50 per cent off manual. Then it happened ! Another department of the same agency office seized the business and wrote it on a bloc form. After just two and one half years, the risk is feverishly seeking a market and the sole reason is that safeguards so tediously worked into the picture by the burglary underwriter were not required under the bloc policy and the deterioration of experience—almost exclusively in the form of preventable burglary losses—has reduced the agent and the insured to the extremity of seeking a company willing to issue the coverage desired.

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Instances of this nature are not rare, but emphasize once more the need for an adequate premium to cover cach risk and for a very real effort to be constantly applied in order that a risk will maintain the protection and safeguards which every student of our business knows must prevail in order to keep exposures within reasonable bounds. Our agents and company men must also realize that a good fire risk is not necessarily an ideal casualty risk and vice versa. W e need go no farther than to observe that a mattress factory or a broom factory would be regarded by any burglary underwriter as an ideal undertaking for crime insurance whereas the average fire underwriter will be delighted to write substantial lines on a stock o f hardware or small tools, currently one of the "hottest" stock burglary lines you can offer to burglary underwriters, particularly in many metropolitan centers. Into this note of pessimism, let me add again that our need is for the sale o f the commercial property form to risks that have heretofore carried only traditional fire coverages. Then, and then only can we hope the class will produce a sufficient premium income to justify the very modest charges included in the rating formula for burglary and theft exposures under commercial property forms. W e are confident this state of affairs will ultimately come to pass but as yet, if it is a trend, it is of such minute proportions that underwriters with whom it is my privilege to have contact have not yet noted such developments. In the field of insurance for individuals, w e must of course pause to consider the comprehensive dwelling policy forms and the other multi-peril forms, Homeowners' Policies A, B, and C. All of these forms have enjoyed widespread acceptance and while the experience thus far has been "spotty" and no absolutely definite pattern has as yet emerged, it would appear that results under the comprehensive dwelling form and Home-owners' Policies A and Β may prove to have been reasonably satisfactory to date. Production results have quite generally been at a sufficiently high level to satisfy agents and companies but as the loss experience under Home-owners C has been disturbing, w e should undoubtedly concern ourselves with a worsening of experience under the other multi-peril dwelling forms because of a fear that claims will increase under all forms as our customers become fully aware of the broad scope of coverage they have acquired in each of the multi-peril dwelling forms. Here, again, the cure would seem to be in a wider distribution of the policy forms to the normal householder w h o has traditionally purchased less than complete coverage. There can nevertheless be no denying that more people are getting better broader coverage than they have carried in the past by virtue of their purchase of these new contracts. Reverting again to the commercial field, the broad form storekeepers' policy, covering fidelity and broadened in many respects, provides a splendid contract for small businesses just as will be the case for larger firms when new and improved contracts are announced shortly for dishonesty, destruction, and disappearance coverages in a single blanket amount.

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Further, in the casualty field, extension of policy coverages on a truly comprehensive basis and usually at over-all, sometimes retrospective premiums, has been a helpful and forward looking development. All in all, it seems reasonable to observe that our industry has taken numerous effective steps in providing broader and more salable contracts for its producing sources; now, the problem seems to narrow down to a matter of selling, of better selling, those contracts to the insurancebuying public and it is highly important that this be done intelligently and judiciously. PUBLIC RELATIONS ACTIVITIES

Agents continue to make good use of all advertising media, direct mail, local newspaper, and radio stations, and, in increasing amount, television advertising. The National Board of Fire Underwriters has presently under way a program which will very likely be effective in almost direct relation to the local "tie-in" by agencies. Further, many cases have come to our attention where agents are using their local television stations quite effectively. Some merely sponsor newscasts or programs of local interest, others actually undertake brief programs on which they interview some of their own satisfied customers. W e do not presume to suggest to producers just what form their advertising should take because it will vary by community and by agency, but in the main we applaud the efforts w e have noted and to which some reference has been made. In passing let us take note of the four points being emphasized by the television advertising of the National Board. First is the matter of under-insurance, second, the quality of capital stock insurance, third, the importance o f the individual local agent or broker and finally, the matter of adequate coverage. The over-all campaign slogan for both radio and television commercials as well as for all tie-in material is "Remember, if you're not fully insured—it's not enough!" It is estimated the coverage of the National Board's program extends to 43 per cent of the country's 39,000,000 television homes and 85 per cent of the nation's 47,000,000 radio homes. The spot announcements appear three times w e e k ly on television at prime evening times and on radio three times each day at breakfast, lunch, and dinner hours, five days per week. Thus far, in excess of 4,500 agents have requested radio platters, sets of T V film, mats for advertising and leaflets for distribution. W e cannot resist the temptation to take a few moments of this meeting t o touch upon the very fine booklet prepared by the Surety Association of America in collaboration with the American Institute of Accountants. This booklet, " H o w Much Honesty Insurance?" has already proven to be of outstanding assistance in selling fidelity insurance and in persuading present customers to increase their dishonesty insurance to more adequate amounts. It is reasonable to observe that this is a trend—the increasing sale of dishonesty insurance and the tendency to raise amounts of coverage presently carried for protection against dishonesty losses.

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P r o b a b l y the greatest single factor today assisting us in distribution o f our p r o duct is the public awareness o f the need f o r insurance protection. This stems f r o m m a n y things but certainly, in the casualty field, the verdicts juries are handing d o w n for a u t o m o b i l e and other accidents have dissipated notions o n the part o f most persons and firms that they can " t a k e a c h a n c e " w i t h o u t liability protection and for h i g h limits. Here a trend w o r t h n o t i n g is the ever-higher coverage limit our agents are p r o v i d i n g f o r their customers. C o m p u l s o r y automobile insurance is n o w w i t h us in t w o states and is p r o b a b l y increasing the purchase o f automobile insurance in the other forty-six states. T h e c o m f o r t o f 100 per cent insurance to value under reporting f o r m s o f fire and marine contracts and the blanket nature o f fidelity bonds as w e l l as the all-encompassing scope o f comprehensive liability policies have all contributed to c o n v i n c i n g m o r e and m o r e people that they d o not w i s h to " t a k e a c h a n c e " w i t h any part o f their exposure to loss. T h e spread o f the sale o f accident and health insurance, g r o u p life and g r o u p hospitalization coverages has b r o u g h t millions o f n e w customers into the market place and w i t h each such increase, m o r e and m o r e people and firms have been conditioned to the acceptance o f insurance protection. CLIENT RELATIONS IN SELLING

Into this generally fertile field, then, w e find ourselves ready to examine the selling activities o f agents and brokers. Here, too, there is little that is n e w but I a m m o v e d to observe that most successful agents today appear to be pursuing a course adopted b y a f e w outstanding agents as m u c h as fifteen o r t w e n t y years a g o . T h i s is w h a t is termed account selling and I shall n o t concern m y s e l f w i t h the methods o f t h o r o u g h l y c o v e r i n g the field o f a customer's needs, but instead, w i t h the attitude o f producers. M a n y years a g o there w e r e a f e w agents w h o f r a n k l y told their prospects that they w e r e n o t interested in w r i t i n g " a policy or t w o " for t h e m but as trained and competent insurance people w o u l d assume a v e r y real measure o f responsibility f o r proper protection i f the customer w o u l d turn o v e r t o them, f o r their professional handling, all o f his insurance needs. These agents f r a n k l y stated they w e r e n o t interested in any relationship w h i c h had its basis in any foundation other than p r o v i d i n g c o m p l e t e protection service. I k n o w o n e such agent w h o f o r m a n y years has solicited n e w business o n l y w h e n he felt he w a s " o n top o f his accounts" to the extent that he could visit other prospects a n d say frankly that he f o u n d his time w a s n o t so f u l l y taken up that he was prevented f r o m inviting t h e m to accept his services. T h i s same producer w a s adamant in maintaining the position that any customers he handled w o u l d rely o n h i m exclusively f o r all o f their insurance needs. O n this basis, and o n this basis alone, he w a s prepared to accept a v e r y definite measure o f responsibility for p r o v i d i n g all reasonable insurance protection needed b y the account. For m a n y years he has been o n e o f the most successful producers it has been m y privilege to k n o w .

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Generally speaking I believe it is a reasonably correct observation to say that commercial accounts nowadays are usually well handled by capable agents who have established a proper relationship with their customers. In the few such instances where this may not be entirely the case, I believe every trend is definitely in the direction of establishing a sound and solid base of this nature. An area which may yet be neglected to an extent we cannot be happy about is in the field of insurance needs of individuals. Multi-peril dwelling policies have been of very real help in bringing about necessary changes in this respect, but even today all too many capable agents still claim that time does not permit them to extend proper service to the individual purchasing insurance for his personal needs. We know of no short cut to accomplishing this task properly and intelligendy. It undoubtedly calls for a certain amount of work outside of normal business hours. It is actually distressing to observe the extent to which some insurance producers go in attempting to justify their failure or refusal to call upon individual householder customers after business hours. Within the last month, speaking to a very fine young agent in one of the great cities of our southwest, I was surprised to have him tell me how strongly he felt customers resented being called upon at their homes. This gentleman left me speechless with one illustration. He said people so greatly resent being solicited at their own homes that he was discontinuing the practice entirely and gave as a reason (or an excuse) an experience of his own. He was relaxing in his own living room one evening when the doorbell rang and he found a person at the door who was trying to secure his subscription to a private rubbish collection service. The fee was modest but this agent explained he so resented being disturbed at his own home that he allowed the solicitor to make no headway whatsoever. This agent lives in a beautiful residential suburb of one of our large southwestern cities where municipal rubbish collection service is maintained, but the solicitor endeavoring to persuade him to subscribe for the private service undertook to point out how the service he offered would aid in maintaining the beautiful appearance of the residential area and that their private service was of a nature which would gather and cart away the rubbish from the rear of his property instead of necessitating the placing of rubbish at the curb in the morning and leaving pails and containers—something certainly lacking in eye appeal—at the curb until the householder or his servant would carry them back out of sight. I hope no one in this audience will seriously advance an illustration which has the distribution of our product dealt with by using the matter of rubbish or garbage collection as an example. I know of no one who suggests that established insurance agents should go about after hours ringing doorbells and seeking initial interviews with whomever may respond to such calls. Instead, agents can certainly write or telephone householders of their acquaintance seeking appointments for the purpose of discussing insurance needs and of presenting new comprehensive insurance

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coverage to such friends or acquaintances—after securing firm appointments. If there is any neglected area in our insurance business today, it must undoubtedly be the individual householder. BUDGETING OF INSURANCE PREMIUMS

There is, however, one definite and noticeable trend in our business and that is the expanding move to budgeting of insurance premiums. Presently, budgeting is often applied to several policies, occasionally to large numbers of policies, but in the foreseeable future it is entirely reasonable to predict that forward looking agents will not only accept the responsibility for completely insuring their customers but on a basis whereunder the customer receives full benefit of every term premium and with the resulting total insurance cost budgeted into level monthly, or in the instance of smaller risks, perhaps into identical quarterly expense items by using premium financing facilities presendy in existence to aid the producer and his client in "leveling out" his client's insurance costs. Generally speaking, I seek the privilege of reporting to you that I believe the distribution of insurance in the United States is on an effective basis and is improving as new forms and energies are applied. I have confidence in concluding with the observation that distribution of our product by the sales forces of the insurance industry is on a reasonably sound basis and registers improvement with the passing of every day.

Marketing Trends in Italy by Eugenio A r t o m *

TREND TOWARD SCIENTIFIC SELLING

The marketing activity of European insurance companies was, up to a few years ago, governed primarily by empirical concepts. Companies allowed their salesmen to sell policies according to individual abilities and intuition, and limited themselves to the control of over-all production of the various areas, whose potentials were empirically measured in such a way as to compare the actual results with the estimated ones. Lately a certain tendency can be observed towards confronting marketing problems in a more systematic and scientific manner. This new approach has not perhaps been yet accepted by all companies, nor in all countries. On the other hand, the results of the surveys conducted so far, and the conclusions reached from the available statistics, have not been fully completed. Therefore it is too early to j udge their effectiveness and usefulness at this point. Nevertheless it is important to take note that a new tendency exists in Europe in connection with a truly scientific approach to marketing problems and that the insurance industry shows willingness to accept it. For instance, important research work has been carried on in France by the C.A.P.A. (Comité d'Action pour le Productivité en Assurance), which has conducted important pubüc opinion tests and extensive statistical research in order to study the portfolios of the various lines of business in relation to their territorial distribution. In this fashion, important observations, even though tied up with the solution of premium rating issues, are being made in Germany. Concurrently, in Italy also—on the basis of the data which are being assembled by the National Committee for Productivity and the National Statistics Institute—surveys are being made on the territorial distribution of insurance production. For instance, the National Association of Insurance Companies, in cooperation with the Department of Industry, has started a scientific survey of life insurance production in the various Italian regions, in relation to similar economic activities (savings, consumption, expenditures, et cetera) to determine the potentiality of the individual local markets. In this connection a broader survey for each township is also being prepared. * President, Associazione Nazionale Fra Le Imprese Assicuratrici, Milan, Italy. 289

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As I have said, all this is generally in its initial phase; but it indicates a change in the managerial principles of European insurance companies. Certainly, marketing as a science is a relatively new branch of economic statistics. Naturally, when it began perfecting its methods, and when its usefulness was demonstrated by American experience, even the conservatives started to take into consideration this new tool; or to put it in another way, they started giving the methods of the past a more systematic and complex treatment. Changing Insurance Market I believe, however, that this new need of achieving a more precise knowledge of the structure and potential of the markets is being felt in Europe for a particular reason. That is to say, the European insurance market has undergone deep transformations during the past ten years, while production has not adjusted itself to the new possibilities. For instance, the net national product in Italy at the end of 1955 reached a volume which was 86 times that of 1938, while the price index (especially because of monetary depreciation) was only 56.80 times with an increase of income, in real terms, of about 53 per cent. On the other hand, life insurance premium volume at the end of 1955 was only 45 times that of 1938 and the same index for the casualty premium volume was 75, without taking into account the liability field, the increase in which is due to the rapid development of motorization. Therefore, we are confronted with a situation in which the insurance production has certainly reacted to the effects of monetary depreciation, going back to the prewar volume, but it has not been able to keep up entirely with the increase of the net national product. Undoubtedly, one important cause of this fact can be found in the monetary depreciation itself. If, for instance, we take into consideration the increase in population, we observe that against an increase of 79 times from 193 8 to 1955 in the average income per capita, we have only an increase of 41 times in life insurance volume and of 5$ times in bank deposits. More is produced, less is saved, or at least savings are placed today, to a lesser extent that in the past, in investments like insurance and bank deposits which seem less protected against monetary devaluation. These figures, however, would not give a correct view o f the Italian insurance problem if we disregard the particular factors of the moment, that is to say, the changes in the social structure taking place in Italy and in Europe. Indeed, if we compare the European and American social structures, the first striking difference is found in the levels of income earned by the workers of the two areas. While European salaries, though to a different extent in the various national markets, leave a very limited margin for not strictly necessary consumptions or savings, the margins left to their American colleagues are notably higher. While in the United States the average income per capita reaches $2,036, in Europe (England excluded) it is not, on the average, higher than $600. This is a basic

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fact inasmuch as insurance is wanted by families whose income depends primarily on the w o r k of their members especially the head of the family. In this area, which is the typical insurance market, the possibility of acquiring insurance is highly reduced in Italy and in many other European nations, especially when w e consider that it is not correlated with the over-all work-income but only to that margin which is left after primary needs are met. Therefore, in the past decades a large portion of the city workers, and an even larger portion of rural workers, could not possibly represent an open market for our industry because of the low-salary system which is unavoidable in areas overpopulated and lacking natural resources. The situation is presently changing due to an increase of work-incomes which permits the workers not only a higher standard of living but also, to a certain extent at least, makes available a share of their salaries above their primary needs for investments. This is the basic condition for an individual to become insurance minded. N o w , as we have said, production figures do not adequately show the gain made by the insurance business in a section which was formerly closed. W e might think that this could be due to a combination of various factors, but, since we face contradictory signs, the need of reliable investigation is felt. And this is the reason for the greater interest in marketing research. Thus first of all we ask marketing research to show us what influence the spreading of social security and monetary depreciation might have had on the market pattern. Without a doubt, for instance, as far as work-incomes are concerned, the European insurance companies have to face social security development, which has been on the increase especially between the two World Wars and to a very high extent after World W a r II. It can be said that today all employees of public and private enterprises, all clerks and workers are covered by collective insurance against sickness, accident, disability and death, and all are entitled to old-age pension benefits. These provisions do not always fully meet actual needs, but in almost every instance they exceed what the workers could obtain through free and voluntary insurance with the limited financial means at their disposal. Moreover, in addition to social insurance, certain categories of workers enjoy integrating benefits which derive from both the provisions of law and the initiative of the employers. For instance, in Italy we find a special severance indemnity, for the benefit of the clerical workers who constitute a particularly insurance-minded category. This severance indemnity consists of a monthly salary for each year of active service and, since it is computed on the amount of the last salary received, its intrinsic value is protected against monetary depreciation trends. The possibilities offered by the potential market, constituted by workers with a fixed income, are consequently limited not only by low available salary margins, but also by this partial satisfying of their primary security needs which the workers obtain apparently gratuitously, since their salaries are paid net of insurance

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contributions. This phenomenon is not strictly limited to Europe, but it seems that its impact has been greater in Europe than in the United States. It is, therefore, imperative to control its weight. Effects of Inflation

Monetary depreciation has had an even greater impact on the European market. All European nations have witnessed hyperinflation and, therefore, the depreciation of their currencies at a remarkable, although different, degree after World War I. Subsequent to the 1929-31 crises their currencies underwent further depreciation. After World War II European nations saw their currencies practically turn to dust. About 1950, a form of currency stabilization was achieved which allowed the convertibility of the various currencies at an almost fixed rate of exchange. However, the currencies' purchasing power continues to undergo from year to year a creeping inflation with a gradual decrease, following a constant downward slide. Trend to Instalment Payments

From this stems an increased turning-away from fixed-incomc investments and a race for investments offering a return in real terms. And we End a greater propensity towards purchasing by instalment (which means accepting loans for the meeting of payments connected with material things for which immediate use is granted), such tendency being underlined by the certainty that a delay in purchasing now will mean an increase in price later on. Europe has been for centuries the typical land of savings, whether productive or unproductive. For decades it has fought against the tendency to preallocate savings (instalment-purchase payments, insurance, and so forth) adhering to the typical forms of domestic and bank savings. Lately, and particularly after World War II, the instalment method of payment has gained popularity in Europe, at first in connection with real estate, followed by purchase of articles of consumption and usage (machines, furniture, electric appliances, et cetera). But this acceptance of the system of pre-allocated savings, promoted by publicity, by the greater technical facilities and the material and psychological after-effects of currency depreciation, did not grow hand-in-hand with a corresponding expansion in the insurance field. Is such a thing due to the fact that the more insurance-minded classes feel—within the confinement of their available margins—the psychological repercussions of social insurance and the mistrust in fixed income investments? W e think so, but we are waiting for a reply from the marketing studies. Perhaps the use we have made so far of the expression "work-incomes" is too broad. A correct market analysis should actually be based on the distinctions among the various working groups. There is indeed a great difference between low-ranking employees on one side and employees in higher positions on the other.

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For instance not only is there a difference in the lower salary margin left for nonessential needs but the social insurance benefits are proportionately much higher and more efficient for the low-salary workers and clerks than for the better-paid employees. In other words, social security benefits increase with higher salaries and wages, but at a lower ratio than for lower salaries and wages. Distinction Between

Urban and Rural

Workers

It is also necessary to make a distinction between urban industrial workers and rural workers. Generally in Europe the rural workers receive lower salaries than the industrial workers. Rural workers are more subject to seasonal unemployment (which is more or less cyclical), and in many States they constitute a so-called "depressed category." On the other hand, among various sections of rural workers there are psychological motives which prompt them, in instances when savings are feasible, to avoid using same for pre-allocated investments; for example, in the case of small owners, tenants or metayers, whose expected incomes in relation to the products present annual oscillations which in bad years might require implementation at the expense of the accumulated savings, and where, instead, gains might warrant important savings, such to allow, in particular, the purchase of rural property (especially in periods of monetary inflation). Under these circumstances rural classes are, in comparison with the urban groups of a corresponding income level, less likely to consider personal insurance. Also, it is only within the last decades that social security has begun to operate in the rural sections, and therefore classes which could be reached only with difficulty are only now beginning to realize insurance possibilities through the experience of social security. Need for Differentiation

by

Country

W e have up to now spoken of the European situation. The arbitrariness of any consideration which does not take into account the economic and social differences within the various European countries, is obvious, even though all European States are greatly over-populated (excluding, perhaps, only the Scandinavian countries) in relation to the economic potentiality of their territories; even though all, with the exception of Sweden, Portugal, and Switzerland, have suffered the tragic consequences of wars fought on their territories; and all have felt the consequences of currency depreciation. For this reason, we have refrained from giving over-all figures for Europe which would not have corresponded to the actual situation in the various national territories. Even within an individual nation figures should be considered region by region, in view of the great differences existing therein. Therefore, the analysis of the markets should be made on the basis of the individual national markets, bearing in mind the regional differences. In all these markets we will note different

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degrees in the phenomena we have mentioned, and therefore, different effects, but with a close substantial identity. Therefore, insurance executives are becoming increasingly interested in market conditions, with special regard to the nature of the various markets and the social and territorial production areas, in order to be able to conform their organizations and their performances to the various local needs and possibilities. Old Europe is at this moment in full expansion from the point of view of the present formation of its markets as well as its prospects connected with the European common market. The insurance industry must become a part of this expansion. To do so, it must examine its markets from the point of view of their territorial differences, of their structural subdivisions, so as to overcome not only the retarding factors but also, and above all, the obstacles of a different nature against which Europe has been and is still struggling. Much has been achieved by Europe so fax and much more can still be attained.

PART VII The Capacity Problem

The Role of Reinsurance by H. W . Yount*

This afternoon we are concerned with the problem of insurance capacity. By this we mean the ability of the insurance business to provide coverage for the expanding needs of our economy. Furthermore, our concern is limited to one phase of this problem; namely, the role of reinsurance. By way of introduction to the subject, I have been requested to discuss the theoretical aspects. Others will elaborate upon the nature of the reinsurance market in some detail. My companies are in the direct insurance business dealing directly with business and personal buyers of casualty and fire insurance protection. Because we are engaged only incidentally in the business of reinsurance, my comments are based primarily upon the point of view of a company which purchases reinsurance rather than one which furnishes reinsurance capacity. Our companies do, however, contribute, through association with others, to the total American reinsurance market. Furthermore, my remarks are limited to the problem of reinsurance only as it relates to fire and casualty insurance, although it is possible that some of the observations I am about to make are applicable to the capacity problem of life insurance. To analyze the principles implicit in the role of reinsurance it is necessary to understand the problems of the direct insurance business, which give rise to the needs for the many types and forms of reinsurance transactions that take place in the American and worldwide reinsurance markets. Perhaps it is an over-simplification, but from a theoretical point of view it would seem that reinsurers serve an economic function quite comparable to that of direct insurers. Both insurers and reinsurers are engaged in the economic activity of bearing risks too burdensome to be shouldered directly by the insured. Insurance carriers exchange with insurance purchasers promises in the form of insurance contracts against the possibility of described monetary losses which the purchasers do not wish to have to meet. In consideration of such promises, purchasers pay insurance premiums which are nominal compared with the potential monetary losses assumed by the insurer. Insurance premiums are based upon the expectancy of the loss insured against, plus an expense charge necessary to provide sufficient funds over-all to carry on the business of the insurance company. By negotiating a large number of these contracts on a correct mathematical * Vice President, Liberty Mutual Insurance Companies. 297

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basis, the insurer develops a pool of insurance premiums out of which to pay the losses incurred, the expenses of doing business and from wliich the company hopes to retain a margin of net profit. To protect its insured policyholders against unforeseen contingencies and chance fluctuations in underwriting results, all private insurance carriers maintain surplus funds, known as policyholders' surplus. Policyholders' surplus consists of amounts orginally paid in as capital stock (in the case of stock companies), retained earnings that have resulted from an excess of insurance premiums over losses and expenses, plus investment earnings and profits on the company's invested funds, after provision for state and federal taxes and policyholder or stockholder dividends. Today, by far the greater proportion of insurance company policyholders' surplus funds, regardless of type of company, have come about through underwriting and investment profits rather than paid-in capital funds. In respect to the necessity for ploughing back earnings to provide capital for growth, insurance companies in general have followed a procedure comparable to that of the successful industrial corporations in the United States. The surplus funds of insurance corporations, whether direct or reinsurance, represent an extremely important aspect of the economic function of risk-bearing. The very term "insure" or, as our English cousins sometimes put it, "assure" has about it a connotation of certainty. In the everyday vernacular of our trade we say that we "sell protection." A surplus fund increases the expectation of the protection being genuine and not speculative. When we say that our business is concerned with the assumption of risks too burdensome to be borne by the insured what do we really mean ? I believe we mean that the purchaser of insurance desires to limit the impact of an event upon his own capital through the purchase of the protection afforded by the insurer. His right to call upon the insurer to pay, if necessary, is somewhat analogous to borrowing the same amount from a bank, on a contingent basis, but without the obligation either to pay interest or to repay the loan. His insurance premium covers these contingencies. He has extended vastly his own financial resources. Since surplus funds are an important aspect of "making certain," it follows that the insurer necessarily limits the size of his insurance fund—his premium income—to a reasonable relationship with his surplus funds. Aside from minimum statutory requirements for surplus funds, in order to qualify to write certain forms of coverage, there are no laws or official administrative rulings generally applicable to this situation. Therefore, this problem is largely resolved at the discretion of company management. With the growth of reserve funds for the payment of future losses arising from the writing of workmen's compensation or third-party coverages, the relation of surplus funds to liabilities has become more important than the relation to premium income. In any event, the pool of insurance premiums, plus reserve funds for specific liabilities, is subject to a variety of pressures which may lead to occasional in-

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adequacy. These pressures may be: a lag of premium rate adjustments to reflect current conditions ; effects of changes created by the business cycle ; pure chance. But the insurer, to maintain his competitive position, must keep his surplus funds approximately intact. For this reason he purchases the protection of the surplus funds of others—his reinsurance. Here w e have an example of the efficiency of private insurance and reinsurance functioning within the free enterprise system to conserve total economic resources. Reinsurance spreads the risk of low frequency— but exceedingly high cost—losses over a wider exposure base than the individual direct insurers have. Through reinsurance, a very wide spread of underlying exposures is provided which permits the base for an insurance average broad enough to support the reinsurers' commitments. Thus, reinsurance is a highly efficient device to conserve the capital required by the insurance system within a nation, and on a worldwide basis, wherever freedom of contract is permitted by governments. Occasionally the need for an individual insurance company to maintain a predetermined relationship between its insurance premiums and its surplus funds gives rise to so-called reinsurance transactions under which large blocks of direct business are reinsured by companies with more favorable surplus positions. This, again, is an example of utilizing the financial resources of others, not primarily to escape from burdensome individual losses, but to reduce the impact of unexpected fluctuations in the insurance experience upon surplus funds. For the remainder of this paper I shall limit my comments to only those aspects of the subject concerned with shock-loss reinsurance. The primary role of reinsurers is to assume risks which direct insurers find too great to bear themselves. Specifically, if the potential impact o f a given risk upon the aggregate insurance pool o f premiums and surplus funds of an insurer is too great for the insurer to bear himself, the insurer will seek protection through the facility of reinsurance. Thus, the purchase of reinsurance is for the same purpose as the purchase of insurance; namely, to protect against losses that should they occur would be too great for the insurer to meet directly.

FACTORS MOTIVATING DIRECT INSURER TO REINSURE

Let us examine some of the factors which motivate the direct insurer to protect himself through reinsurance and the form of reinsurance protection he will seek. One consideration is statutory limitations imposed upon carriers in some states as to the maximum liability which can be assumed under any one insurance contract. Often this limitation is expressed as an amount equal to 10 per cent of policyholders' surplus. The United States Treasury Department imposes a similar requirement upon the companies that wish to obtain authorization to issue surety bonds running to the benefit of the Federal government. Although such limitations prescribed by law and by officiai regulation are, of course, controlling, they are

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relatively unimportant in practice. Much more conservative limitations than these are usually followed by insurance underwriters in the United States. In other countries custom and regulation sometimes permit the assumption of a risk of as much as io per cent of the premium fund, although such practices are unusual. A second and more important consideration as to how much and what kind of reinsurance should be purchased arises from an evaluation by the direct insurer of the impact of a single loss or series of losses upon the company loss ratio and upon the company surplus. Primary emphasis may be placed on either the former, or the latter, or both. Company management first decides the maximum amount of loss which the company can safely assume and then proceeds to explore the reinsurance market for protection over that maximum and to determine the cost of what types and forms of reinsurance can be purchased to provide the needed protection. As a result of pricing practices in the reinsurance field, most fire and casualty companies in the United States probably retain net limits of loss considerably below what they could reasonably be expected to assume from a theoretical standpoint. The reason for this anomalous situation is the conclusion reached by most insurers that the reinsurance premium costs for a high limit, plus the cost of losses directly assumed up to that limit, is more than the price necessary to pay for reinsurance to protect against losses going over a lower limit. For this reason, as well as a conservative desire to protect company assets, the customary limit of liability assumed by most fire and casualty companies in the United States is closer to an amount equal to ι per cent of policyholders' surplus than the statutory limitation of 10 per cent, and, perhaps, closer to 0.5 per cent of company premium volume. The nature of the demand for reinsurance coverage is subject to change as the situation affecting the direct insurance writers changes. While premium volume and policyholders' surplus are two primary considerations afFecting decisions by the direct carrier management as to the limit of liability to be assumed, these values in themselves have been far from static. According to the figures included in Best's Fire and Casualty Aggregates and Averages, total fire and casualty premiums have in the United States increased from $1,833,000,000 in 1931 to $10,539,000,000 in 1955, or an increase of approximately 475 per cent. Significantly, this premium volume has tended to run in the vicinity of 3 per cent of the country's national income. During this twenty-five year period, surplus to policyholders of the same companies has increased from $1,728,000,000 to $9,461,000,000, or about 450 per cent. The number of companies reviewed in the publication has, of course, increased but not enough to make any material change in the aggregates. The point is that the United States fire and casualty insurance companies have been increasing in size with the economy, and with such increase in size they have been enabled to assume larger shock losses without undue disturbance to their loss ratio or to their financial condition.

The Role of Reinsurance

301

With the increase in the capacity of the direct carriers the problem of the reinsurance companies to maintain a growing volume of premiums would have been materially aggravated had the distribution of loss by size remained constant. Although dealing with losses of large size which, of course, occur less frequently, a reinsurer is under the same compulsion as a direct insurer to obtain a spread of loss with which he will have a high probability that the total result of his underwriting will reproduce the expected aggregate. There has been at work in our economy a combination of factors which have tended to increase the proportion of excess losses faster than the growth rate of the economy. This situation has presented quite a difficult series of problems for reinsurers which I will now attempt briefly to describe. EFFECTS OF INFLATION

Orthodox economics generally attributes an upward price spiral to the effect of a greater rate of increase in the supply of purchasing power media than in the supply of goods and services produced. In the past such upward price spirals have been termed monetary inflations because their cause was an over-supply of money to the equation of exchange. It is not at all clear that the present price spiral in which the economy finds itself is due to lack of balance on the money side. Many observers consider it due to monopolistic powers by those w h o control wages and the supply of labor. Whatever may be the basic cause of the current inflation, costs of losses forwhich reinsurance is demanded have been increasing steadily because of the declining value o f the dollar. This is well illustrated in the field of fire insurance where building costs are approximately 300 per cent of their pre-war level and where the value of building contents is from 250 per cent to 300 per cent of their pre-war level. Inflation is the primary cause of the increase in the number of high cost fires. According to a recent press release from the National Fire Protection Association, fires costing in excess of $250,000 in 1956 in the United States and Canada established a new high in the dollar loss from such fires. There were 430 such fires reported for a total loss in excess of $330,000,000, which is greater by $50,000,000 than the previous record loss from such fires established in 1953. This illustrates one aspect of the need of the direct carrier for reinsurance and the problem of the reinsurer in handling it. In the field of third-party liability insurance the same inflationary factors have been at work. With average industrial wages more than three times the prewar level, and with the cost of personal services in hospitals on a comparable level, it is obvious that the direct dollar loss resulting from bodily injury will be measured in equivalent terms. O f most significance to the reinsurer is the fact that w e are still in a cycle of inflation which, together with other factors affecting claims costs, probably are producing an annual increment approximating 5 per cent in the average cost of third-party claims.

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The added assumption by the reinsurer of the risk resulting from the inflation spiral is not contemplated by the theoretical consideration of the economic function of reinsurance, or of insurance. Practically it is a very real consideration and affects the purchaser of insurance, the direct insurer and the reinsurer in varying degrees. With adequate insurance to value in the field of property insurance, inflated values should be covered by inflated premiums. Under-insurance during a period of inflation, unless the insurers have adequate co-insurance protection, will tend to pass a portion of the cost created by the inflation onto them and through them to the reinsurers. The reinsurers will be hardest hit because a larger proportion of the total number of losses will now run through reinsurance attachment points. Likewise, in the field of third-party liability insurance the reinsurer is hard hit because he is forced to assume a substantial proportion of the effect of the inflation on claim costs. Where the reinsurance covers for an excess above a specific amount of loss, the direct insurer passes along to the reinsurer the full effect of the inflation on the claims costing in excess of such amount and, of course, a larger proportion of all claims will now run above the amount specified. When the delay in reporting many such serious cases and the long period required in many instances for the final determination of liability under our court procedures is considered, the problem of the reinsurer in having to assume the risk for which inflation is responsible is seen to be a very serious problem indeed.

BASIC CHANGES IN PRODUCTIVE PROCESSES

Recent changes in the fundamental nature of the economy itself are bringing even more significant changes in the needs and demands by insurers for reinsurance protection and thus most profoundly affect the role of the reinsurer. In the field of physical damage we find constantly larger individual loss potentials in our manufacturing industries. This results either from larger individual properties or from a greater concentration of value within the safne property. W e live in an age of greatly increased industrial horsepower. The industrial use of horsepower per worker employed has more than doubled in the past ten years. This reflects not merely more power equipment but more valuable and complicated equipment resulting from the development of automation. Examples of the impact of this situation on insurance are the recent catastrophic losses of the Livonia fire to General Motors and the Whiting fire to Standard Oil of Indiana. In addition, the impact of Use and Occupancy coverage losses, now customarily insured, tends to increase geometrically with the direct loss arising from such events, because of the effect of the loss in curtailing the production of other plants which are dependent on using products manufactured by the primary plant. A similar analysis can be applied to the field of boiler and machinery insurance. Both the increased cost of automatic machinery and the increased importance of a

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single machine in the production process, not merely of the damaged plant but also o f dependent plants, have pyramided losses arising f r o m loss of use coverage. As a result, reinsurers are asked to furnish capacity for potential losses which arc sometimes astronomical in comparison with the coverage needed to protect against similar losses in the prewar period. Also, new industrial processes and products are creating new catastrophe hazards. These hazards affect not only workmen directly engaged in production but also the property or persons of the public. This is particularly true in the chemical and metallurgical industries. Here the demand for something new has occasionally outrun the ability of the industrial technicians to provide for its safe development and use, with the result that insurers and reinsurers are faced with demands for high limits of liability, high catastrophe potential, and occasionally have to meet an obligation to make high loss payments. The latest illustration, and one with which I have been closely associated over the past two years, is the problem of providing insurance for public liability hazards arising out of the peace-time use of nuclear energy. As the business was conducted as recently as two years ago, existing insurance and reinsurance facilities simply could not cope with this problem. In order to meet the need insofar as possible, the insurance industry has taken the unprecedented step of attempting to mobilize all of our domestic insurance capacity, including both direct and reinsurance companies. T w o separate syndicates or underwriting pools have been organized for the purpose of writing this form of third-party liability insurance. They have pledged a net domestic capacity for third-party coverage of approximately $42,000,000, with the expectation of a total of $60,000,000 when worldwide foreign reinsurance can be brought into the picture. In addition, syndicates and pools have been organized to write the physical damage coverage on such nuclear installations for a total net domestic capacity slightly greater than the third-party capacity, and this may also exceed $60,000,000 when supplemented by similar foreign reinsurance. Dynamic changes of this magnitude in our economy bring about newly-created needs for insurance and force a reappraisal both with respect to the capacity of direct insurance and the facilities afforded by the worldwide reinsurance market. Even what we have done in the atomic field is not enough ; legislation is pending before Congress to provide an additional indemnity by the Federal government of $500,000,000 over and beyond the net domestic and foreign insured third-party capacity. Another development of our economy which is taxing the facilities of the direct insurers and hence makes a strong challenge to reinsurers is the field of products public liability. T w o factors have contributed to make this an area of particular importance. One factor I have already referred to ; namely, the increasing complexity and integration of our industrial processes. The second factor is a change in public attitude and philosphy with respect to searching out the ultimate

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tort-feasor. The commercial airplane affords a good illustration of the change which is taking place in one phase of products public liability. When the Douglas D C - 3 was introduced in 1935, as the "ultimate" answer to the problem of air transport, the capacity of the plane was twenty-one passengers with a crew of three, and the cost of the plane itself was less than $200,000. Investigative procedure of the causes of crashes on airlines was elementary and the results of an accident generally eliminated any material which could furnish proof of the proximate cause. The war brought a change in this situation. Investigative procedures developed rapidly until it was often possible from an analysis of what remained after an accident to form a reasonable conclusion as to the primary cause of the crash. This was the beginning of efforts to pass liability back to the manufacturer of the failing part directly responsible for the crash. The procedure has been perfected until today causal relationship can be established in many cases. At the same time, the costs of commercial air transport planes have steadily mounted until today the newest type in use costs in excess of $2,000,000. Such planes carry from sixty to eighty passengers with a crew of five. Jet transports to be delivered in 1958 will cost from $4,500,000 to $6,000,000, and will carry from 120 to 200 passengers, probably with a crew of six. Today, with inflated values for personal injuries, higher workmen's compensation claim costs and plane costs, the crash of an individual transport plane which can be attributed to a defective product for which the part manufacturer is alleged liable may run as high as $5,000,000, or ten times the prewar cost. The new jet transports now on order will more than double this potential cost. When to this, one adds the indirect cost attributable to "sister ship" liability arising because of the forced grounding of similar planes with comparable defects, it is obvious that products liability is a major problem to the air transport industry as well as to insurers and reinsurers. In the prewar period, products liability claims arose principally from the manufacture and sale of foods, drugs, cosmetics, and pharmaceutical products. Today, such claims arise from the manufacture and sale of all types of products including industrial machinery and even from furnishing of engineering design and technical advice. The problem of malpractice liability is another area somewhat related. Liability arising out of the operation of hospitals and the performance of surgical and medical service presents a rising problem to those engaged in such professions and is a definite challenge to the capabilities of insurance and, in turn, to the capabilities of reinsurance. Problems of similar type are gradually extending to all areas where independent professional advice is rendered, such as to accountants, lawyers, and even to insurance agents. Closely related to the field of products public liability, as ordinarily understood,

The Role of Reinsurance

305

is insurance against loss arising f r o m the breach o f a warranty of performance. Some underwriters believe that this is carrying the assumption of risk on the part of insurance companies too far: that business concerns should assume as a matter of ordinary business running expense their liability for the development and marketing o f products which will perform according to specifications. Nevertheless, demand is increasing for coverage in this area and here again reinsurers will probably play a part in the assumption of a n e w type of risk.

SOCIAL ATTITUDES

Brief mention of the impact of changing social attitudes on insurance and their effect on reinsurers should be made. Perhaps the most important of these attitudes is the one having to do with the practical application of legal liability. The change in attitude is expressed in the changing concept from one of sole negligence to comparative negligence. This has been expressed in a few states by changes in their statutes. In other states the same end is being approached by the attitudes applied in settlements and jury verdicts and even by action of the judiciary. The effect is to bring into the field of liability insurance for payment, many cases of a type which were formerly regarded as "no liability" cases because of contributory negligence. A more significant change in social viewpoint is illustrated by the revolution now under way with regard to the value of serious third-party accidents. The increase in liability claim costs, which concerns both the insurer and the reinsurer, has been relatively greater for the serious accidents than for the minor accidents. Reasons for the change in attitude are various. One is the general effect of inflation, while a second is a much more widespread knowledge as to the presence and impact of insurance coverage. A third is undoubtedly the increased use of dramatic presentation on the part of certain elements of the legal profession. In any event, the combined effect adds to the problems of reinsurers in their role as absorbers of the impact of shock losses. CATASTROPHES

The occurrence of catastrophic losses involving injuries to numbers of persons or to numbers of property owners, and which run into sizable loss figures, is on the increase. Many of the reasons for this increase are inherent in some of the factors discussed previously. In the field of workmen's compensation, with the advent of higher weekly benefits for lifetime in the event of total incapacity and unlimited medical expenses, even one injured workman may, under some circumstance, present a total loss in excess of $250,000. The Texas City disaster in April, 1947, resulting in 551 people killed, 3,000 seriously wounded and damage to property of $60 million, was the worst workmen's compensation catastrophe on record, costing about $2,000,000. Were this catastrophe to be repeated under today's

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W o r l d Insurance Trends

conditions in one of the states with benefit levels more nearly in keeping with today's wage scales, it could cost easily five times as much. Mention has been made o f the catastrophe potential in air travel. Highway and rail transport afford similar catastrophe potentials, particularly with the advent of automatic controls on the railroads and their possible failure. The most spectacular catastrophes which have posed problems are in the field o f property damage arising from tomado, hurricane, or similar natural disaster. Here the problem has been accentuated through the growth of more property value per person, greater insurance to value, greater purchase of insurance and greater concentration o f population. Reinsurance underwriters need to know if the world's weather remains subject to what is called the law of averages, or if, as some meteorologists have stated, it is in the process of a permanent change that will result in changes in hazard with respect to the geographical and seasonal incidence o f the great eruptions of nature which remain uncontrolled by man.

CHANGING ATTITUDES OF INSURANCE BUYERS

Many of the preceding points with respect to the changes in our economy and changes in social attitudes are reflected increasingly by the attitude o f insurance buyers. The immediate impact on the insurance market is a demand for higher limits of liability in third-party coverages and the requirement of catastrophe type coverages amongst larger buyers o f property insurance. The increase in the size o f the public liability requirement on the part of industrial buyers has been of most significance and has perhaps imposed the greatest problems of insurance capacity. U p until a few years ago it was very unusual for an insurance buyer to request limits of liability in excess of $1,000,000, either on a per person or a per accident basis. Most insurance was sold for limits substantially less than this amount. Today the situation has changed. A survey just completed with respect to the purchase of excess limits coverage by the American Management Association shows that current limits are approximately three times the limits o f four years ago. A corporate purchaser of insurance wants to make certain, first of all, that the corporate assets are adequately protected. The price of the coverage is not the deterrent for the purchase of high limits that was formerly the case. Recently a buyer who had never purchased limits in excess of $1,000,000 requested limits o f $10,000,000 on the renewal of his policy. W h e n it was pointed out to him that he had a very normal operation without any obvious catastrophe exposure, his reply was that the high limits represented "sleep insurance." T o the extent that the writer of primary coverage is under increasing pressure to provide higher and higher limits of liability, the role of the reinsurer becomes more acute in attempting to provide such limits. Even though the liability may be extremely remote, the reinsurer is under the same obligation as the primary

The Role of Reinsurance

307

insurer to protect his resources and the integrity of his insurance fund. The volume of such requests involving either single limit or catastrophe coverages is such that the reinsurance market is being strained as never before to provide high limits of liability. T o obtain a spread of individual high limit contracts means that more and more the reinsurance market becomes a worldwide market.

CONCLUSION

What is needed for the future? From the foregoing discussion we may draw certain conclusions: (1) The role of the reinsurer is to provide the capacity for the expanding needs of primary insurers. (2) The requirements upon reinsurers are changing with the economy and with changes in the primary insurance market. (3) Pressures are developing with respect to reinsurance capacity which probably cannot be met by the existing reinsurance facilities. (4) A tremendous expansion of the reinsurance facilities to be required can be obtained by mobilizing to a substantial degree the inherent capacity of the primary writers as reinsurers. The latter point deserves comment. Almost all primary writers occasionally provide reinsurance capacity. In good times this is likely to result in competitive practices which are ultimately unsound both for the primary writer and for the reinsurer. Favorable conditions tend to produce extravagant practices by way of excess commissions and expenses which cannot survive a cycle of adverse experience. On the other hand, a proper organization of direct writing capacity on a quota share of reinsurance through expansion of the idea of pools and syndicates is perfectly feasible and with proper management can go a long way in solving a portion of the problem of the reinsurers in contributing sufficiently to today's demands for reinsurance capacity.

The Life Reinsurance Market Today by W a l t e r O .

Menge*

INCREASE IN NEW LIFE COMPANIES

During a relatively short period of time in the immediate past, we have witnessed a phenomenal increase in the number of new Ufe insurance companies in the United States of America. Statistics compiled by the Institute of Life Insurance from the several state insurance departments indicate that during the past six years the number of legal reserve Ufe insurance companies has almost doubled, increasing from 609 in 1949 to 1,060 in 1955. This period has been the most prolific for theformation of new companies in the history of life insurance in this country. In the main, the capital used in the formation of these new companies has come from independent and private sources, although recently there has been a trend toward the organization of life insurance subsidiaries or affiliates by established companies in the fire and casualty insurance fields. This is a relatively new development in this country where most companies or groups of companies have devoted themselves either to insurance on property or insurance on persons, but not to both. In other countries many of the domestic companies deal in practically all lines of insurance, casualty and fire insurance as well as life. The appearance on the American scene of this large number of newly formed Ufe insurance companies has created many new problems in the industry, not the least of which is a critical shortage of manpower in many areas of Ufe insurance operations. This shortage of manpower has been felt acutely in the areas of trained personnel in almost all phases of the life insurance business, including sales, accounting, actuarial and management. For the estabhshed Ufe insurance companies specializing in Ufe reinsurance, the influx of new companies has brought new challenges. The capital and surplus funds of a new company are necessarily Umited and the strain upon them in the financing of new business is severe. A t the same time the aim and desire of the management and the field force of a new company is to provide an insurance service with respect to amount of insurance and type o f business written, including substandard classifications, comparable with that o f larger and longer established competitors. A new company, in view of its Umited resources, must of necessity estabUsh retention Umits for the various classes of * President, Lincoln National Life Insurance Co. 308

The Life Reinsurance Market Today

309

risks at very reasonable figures, thus creating a demand for reinsurance even in some eases where the size of the policy does not greatly exceed the average amount issued. W I D E OWNERSHIP OF LIFE I N S U R A N C E

In considering the amount of average policy of insurance, it is necessary to bear in mind that although the life insurance market in the United States is still far from the saturation point, the ownership of Ufe insurance here is much more widely distributed than in any other country. The total life insurance in force in the U.S. stands at the gigantic total of roughly $400 billion, an average about $7,000 per family. It is estimated that on the average this is roughly equivalent to one and one half times the annual disposable personal income of our population. Nearly five policies are owned per family, and two out of every three men, women, and children have some life insurance coverage. The extensive agency organizations of U.S. companies, with their elaborate systems of recruiting and training agents, are largely responsible for this wide distribution of the benefits of life insurance among our population, and are a reflection of the intensive competition which exists between the companies. This competition extends beyond the usual important items of cost and quality of service. In order to maintain prestige before the public and its own agency force, each company whether large or small also meets the competition of others in many other ways. Not the least of these is the ability to issue policies of relatively large size or to insure lives which do not fully meet the usual insurability requirements for standard premium rates. LIFE REINSURANCE C A P A C I T Y

With life insurance so widely and more or less evenly distributed among our population, the problem of reinsurance capacity, i.e. the ability to cover large risks, is not acute. For reinsurance of life risks the capacity situation differs materially from other lines. In marine insurance, for example, the value of even the on-deck cargo of a small coastwise vessel may greatly exceed the amount of the usual life insurance risks. In the production of electricity from atomic energy, the public liability hazard from a single incident may far exceed the capacity of all of our companies combined. This has led to consideration being given to supplementing the facilities of private companies by some form of government insurance. In the casualty insurance field the chief purpose of reinsurance arrangements is to permit the originating company to handle large transactions quickly while it limits its own retention on each risk to a relatively small fraction of the total liability. As far as retention is concerned, the ideal is the widest possible dispersion of the risk, even to the point of "atomization," so that each participating company covers only a small value on each of a large number of risks. The attainment of this II

310

World Insurance Trends

ideal situation requires extensive reciprocal reinsurance arrangements involving a large number of companies. B y way of contrast, it is not uncommon for a large life insurance company in this country to issue a total of $1,000,000 or more life insurance on a single individual, to retain its normal maximum retention limit of, say, $200,000, and to reinsure the entire excess with its sole reinsurer. In such a case the reinsurer retains its own retention limit and retrocedes the remaining excess to a relatively small number of other companies. A transaction of this type is handled by the professional reinsurer in a more or less routine way as a matter of service to its reinsurance client company and does not strain the capacity of the reinsurer except in rare instances where the total line is unusually large. RECIPROCITY

In the life reinsurance market in the United States the problem of reciprocity is of minor importance. It should be borne in mind that many of our larger life companies cede reinsurance freely while refusing to accept reinsurance in return. This is at variance with the situation in many other countries, and comes about largely because of the nature of the service provided by the professional life reinsurance companies in this country. These professional reinsurance companies aggressively compete for reinsurance for its own sake. In addition to handling excess lines, they are specialists in the underwriting of those substandard risks which all companies, large and small, encounter in the course of their solicitations. Because of the relative infrequency of such risks the originating company may prefer to pass on to its reinsuring company either all or a substantial part of these risks. Frequently, the reinsurer accepts the entire risk with no retention on the part of the ceding company. That some risks should be reinsured in their entirety, as they frequently are in the life insurance business in the United States, is a concept practically unheard of in the casualty insurance field or among most Ufe companies outside of this country. L O N G - T E R M RISKS

In casualty reinsurance we deal with short-term risks, against events that may or may never occur, under contracts that may be renegotiated every few years and even from year to year. Life reinsurance, on the other hand, usually covers risks under contracts that continue for many years against an event (death) which is certain to occur and whose incidence may be predicted on the basis of statistics with more accuracy, at least in the aggregate, than is usual in other lines of insurance. With respect to a given class of business, the elapse of many years may be required to determine the ultimate underwriting profit or loss for the reinsurer. When viewed from this angle, life reinsurance becomes a device for smoothing fluctuations in

The Life Reinsurance Market T o d a y

311

the incidence of mortality of the ceding company, such fluctuations being more sudden and severe in the case of high insured amounts and in the case of more hazardous risks. U N D E R W R I T I N G SERVICE

In the casualty branches, once a reinsurance agreement is made, the individual transactions are largely automatic. The reinsurer, with confidence in the underwriting ability of the ceding company, usually grants many lines of automatic coverage. Amounts in excess of automatic limits are submitted facultatively, not so much for underwriting opinion as to give the reinsurer an opportunity to arrange for retroceding a part of the risk. In life reinsurance, on the other hand, the younger companies with severely limited retentions usually do not have, except through reinsurance, the expert underwriting facilities that are so necessary in the case of a large amount or in a case where, due to medical findings or other features, an extra mortality is to be expected. Actually, a number of the oldest and largest life companies themselves reinsure, not so much to enlarge their capacity as to smooth their mortality experience under these so-called subnormal or substandard risks and also to obtain the expert underwriting service of the reinsurer. For many years the reinsurance companies in the United States have played an active role in the underwriting of substandard Uves. As a result the volume of mortality experience on the more important impairments in the files of these companies is quite large and exceeds that of any of the other companies, except perhaps one or two of the largest. In addition this mortality experience has had the distinct advantage of being underwritten on a more or less uniform and consistent basis by a single underwriting staff. Studies of the experience on various classes of impairments have been extracted from these records from time to time and furnished to the industry as a whole, in the hope that they may prove helpful to other companies in the underwriting treatment of such risks. The life reinsurance companies are in the unique position in this country in furnishing leadership and direction in the underwriting practices of the companies. This position, of itself, implies a major responsibility for the adoption of sound underwriting classifications by the reinsurer. If the ratings established for a given class of impaired risks are too high, these individuals will be required to pay more than necessary for their insurance. If the ratings are too low, on the other hand, the losses experienced on this particular class of risks will necessarily be borne by the other policyholders (and also by the shareholders in the case of a stock company).

CLOSE RELATIONSHIP BETWEEN CEDING C O M P A N Y A N D REINSURER

The long term nature of Ufe reinsurance implies a continuing relationship over many years between the ceding company and the reinsurer. The underwriting

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service performed and the guaranteed renewal of the reinsurance from year to year result in a close relationship which is usually far more intimate than that which exists in other lines. Life reinsurance is conducted in complete good faith on the part of the two companies—not just ordinary good faith, but the strictest of good faith. This means that the original company offering a risk for facultative reinsurance gives all the facts and circumstances concerning the life to the reinsurer. It gives not only the facts which are revealed by the application and medical examination, but also anything else which is within its knowledge and which might influence the decision of the reinsurer to accept or reject the risk. Likewise, the reinsurer acts also with utmost good faith in carrying out its agreement to pay the claim to the ceding company whenever that company pays its claim on the policy. To demonstrate how universal this principle of good faith is in the business, you need only look through the citations in the law books to see that there are few cases of litigation growing out of the Ufe reinsurance business. Most of the cases cited having to do with reinsurance arose in lines of insurance other than life. To avoid litigation, there exists in most Ufe reinsurance contracts a provision requiring that disputes between ceding company and reinsurer be arbitrated. Even the arbitration provision itself is rarely invoked, however, since virtually all points of disagreement are usually resolved by mutual amicable discussions proceeding from the basic premise that the life reinsurance treaty is essentially a gentlemen's agreement expressed in legal form. The close personal relationship between the reinsurer and the ceding company frequently extends beyond the immediate areas covered by the reinsurance contract. Because of its experience with the problems of numerous newly formed life insurance companies, the reinsurer's advice and counsel is frequently sought by the managements of new companies with respect to many of the problems which all such companies face in their formative stages. The areas in which the reinsurer's counsel can be helpful run the gamut of the life insurance business, but among the more important of them are the locating, and sometimes even the training of suitable personnel and technical advice with respect to home office and agency procedures, as well as items more closely related to reinsurance such as underwriting and policy issue. Such assistance is, of course, given most willingly by the reinsurer, not only because of a desire to be helpful, but also because of its realization that the future of the reinsurance relationship, to some extent at least, is bound together with the future of the ceding company. In its desire to be helpful, the reinsurer is mindful of the necessity of avoiding any infringement into areas normally serviced by consulting actuaries, certified public accountants, etc., but the line of demarcation is sometimes difficult to draw with precision. The ideal situation, which frequently obtains, is that in which the reinsurer cooperates with the professional consultants in solving the problems of the young company through the joint efforts of all.

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313

The entire life insurance business has but recently entered a new era of change, experimentation, and intensified competition. The professional life reinsurer must not only keep in the vanguard of this trend with respect to its o w n operation but must also continue to offer a reinsurance service, in the broadest sense of that term, of a sufficiently high caliber that its clients can rely upon assistance toward the same goal of increased service to the insuring public.

Life Reinsurance in Japan by T .

Fujikawa*

The period of development of life reinsurance in Japan is relatively short, as compared with the ordinary life insurance that registers a history of eighty years and over, and it was only about twenty years ago that life reinsurance business in Japan made its initial start. Why the advent of life reinsurance in Japan was thus delayed may be explained as follows. The Japanese law stipulates that the business of life insurance and that of non-life insurance should be operated absolutely independently of each other, and by different institutions. Despite the general conception that life reinsurance should be taken care of by non-life insurance companies, the non-life insurance companies of Japan were not, on that ground, interested in it. Moreover, most of the life insurance companies in Japan tended, in their way to expansion, to concentrate their effort in the writing of policies of amounts conducive to the building up of the mean values in the distribution of sums insured, rendering it possible for them to do without the so-called reinsurance of large policies. And, by gradually increasing their own maximum sum assured per life in proportion as their capability increased, most of the companies were able to adequately fulfill the requirements of the public, without having recourse to reinsurance. With the approach by foreign insurance companies for reinsurance of substandard risks as a turning point, however, the necessity for reinsurance cover began to be felt, and in 1935 for the first time in Japan one special company was inaugurated by the joint investment of the then life insurance companies for the purpose of engaging in reinsurance of sub-standard lives. About eight years later, along with the advance of inflation due to war, the number of large policies suddenly increased and, in particular, demands for raising the maximum sum insured per life became urgent, and the company started to write reinsurance of large policies. T w o years after the company opened its portfolio for reinsurance of large policies, it was compelled to be absorbed by a government organ (The Central Life Insurance Corporation), and the volume of the business of the company at the time was as stated hereunder. With the dissolution of the Corporation in 1947, after the end of the war, the company was reorganized on the capital invested by individuals—independently * President, T h e Asahi Mutual Life Insurance C o m p a n y , T o k y o , Japan.

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Life Reinsurance in Japan

315

BUSINESS IN F O R C E

As of March 3 1 , 1945 Reinsurance Business (Amount in

Sub-Standard Risks

¥i,ooo)

Standard Risks

Total

Pol.

Amt.

Pol.

Amt.

Pol.

Amt.

50,672

76,945

7,983

268,336

58,655

345,28i

of other life insurance companies—and it has been carrying on its business up to the present. The general outline of the standing and the circumstances surrounding the company is as follows. When the war came to an end, all the life insurance companies in Japan found their assets abruptly diminished, and despite the fact that their recovery was rather slow, these companies were obliged to raise their maximum sum insured per life irrespective of their capabilities in order to catch up with the advance of inflation that ensued, and the necessity for reinsurance of large policies was widely felt to cope with the situation, making it necessary to speedily reopen reinsurance transactions. However, the advance of the inflation at that time was such that what were generally considered to be "large policies" just a few years back had now to be looked upon as "average sums," and although the number of the reinsurance policies was fairly great many of the policies were dropped in subsequent years by treaty provisions based on the mutual understanding with the ceding companies. Such state of things continued up until about 1956, when the situation became finally settled. Reinsurance of sub-standard lives was utterly disregarded during the few years following the end of the war, but since around 1955, when the rationalization of the management of the life insurance companies became realized, the life insurance companies commenced to gradually reopen their operation in this line of business, and reinsurance of sub-standard lives came to be gradually increased along with their activities. With regard to the management of the company, the old company was in a position to enjoy a guaranty from other life insurance companies in case of possible losses inasmuch as its business was being carried by the joint investment of the life insurance companies, but the new company could not carry on the reinsurance business profitably by simply utilizing its own capital or the old accumulated funds, for the assets of the company had diminished in consequence of the defeat in war and the business in force did not amount to very much. For these reasons, and with an eye to the increasing of the volume of the reinsurance business, the business of the company is now being done in a manner of a "pooling system," the company

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World Insurance Trends

receiving automatic cessions f r o m its ceding companies of the excesses over their retentions fixed at a point which may generally be considered to be unreasonably lower than is justifiable, but on the other hand, the company has been refunding to the ceding companies the greater portion of the profits derived from the reinsurance portfolio. In this connection, it may be interesting to note that the company has been refunding f r o m 70 to 80 per cent of the mortality gains to its ceding companies. The reinsurance system in Japan is as above stated, and it is gratifying to see that the reinsurance of life insurance in Japan has been and is being done to the entire satisfaction of all concerned. The recent business result of the company is shown in the following Table. Business Result of New Kyoei Life (Amounts in ¥1,000)

Standard Risks Pol. Business in force at beginning of year New Business Death claims Decrease by other causes Business in force at end of year Reserves Reinsurance premiums received in the year

21,774 6,326 91 8,506 19,503

Amount 16,720,530 5,401,410 68,500 6,826,380 15,227,060 96,592 121,294

Substandard Risks Pol. 1,419 2,178 21 351 3,225

Amount 709,850 1,049,570 7,100 221,240 1,531,080 16,503 30,167

Property and Casualty Insurance Market by Arne Fougner*

After World War II we heard a great deal about an important problem which turned up in many places affecting particularly countries suffering from the war and its aftermath. It became known as the problem of "dollar shortages." It was supposedly a new problem both acute and widespread. Basically, however, it was neither new nor uncommon. I am sure that all of us in varying degrees throughout life experience with some regret the shortage of dollars or money generally to run our lives the way we would like. It is nothing but a limitation of earning power conflicting with an effort to keep up with inflation and with the Joneses. In matters of national and international finance, the problem was largely novel in its degree only, resulting from rapid efforts of reconstruction and conversion to peacetime production, a vast process developing under a pall of shattered government finances, confused government regulations, and a stranglehold of bureaucratic ineptitudes. Actually, of course, there was plenty of money and even dollars in the world, the trouble was only that the dollars were not freely available in the desired amounts in the right place at the right time largely because of a shortage of goods with which to exchange them. The dollar shortage was, therefore, a very relative thing in the first place and, secondly, only a single outward symptom of an underlying basic condition. In other words, when the problem of that day is described as a dollar shortage one confuses the basic causes with one single outside effect. It makes as much sense logically as describing a man emaciated through starvation by saying that he is suffering from protruding bones. THE CAPACITY PROBLEM DEVELOPS

Turning to the world of insurance and reinsurance, we have similarly seen and heard a great deal in the postwar era about the widespread and serious capacity problem reflecting the difficulty or the inability of insurance coverages to find ready markets. In the United States, for instance, this was particularly acute and even painful in the late 40's when rapid inflation, sharply rising prices, intense economic expansion, vasdy increased civilian production, spurting construction, * President, Christiania General Insurance Corporation of New York. 317

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resumed large-scale automobile driving, et cetera, causcd premium volume in all branches of insurance to expand beyond the readily available capacity of the American insurance industry based upon its limited capitalization and its stringent reserve requirements. It is interesting to recollect, however, that insurance results during that very period were poor in many branches of insurance, for instance, the big fields of automobile and fire insurance. When increased rates and other important remedies combined to produce improved results the capacity problem had a remarkable tendency to disappear rapidly until today it is largely a thing of the past, giving way to old-fashioned conditions of keen competition and even a scramble for business, at least in so far as the run-of-the-mill business is concerned. More recently the capacity problem has taken on a new aspect and an even more acute form. In November 1950 an unusual storm of hurricane force sweeping along the eastern States from the Carolinas into Canada, unprecedented in fury and scope, caused property damage running into hundreds of millions of dollars, of which a very substantial part fell on insurance companies through the extended coverage portion of fire policies and the comprehensive section of automobile policies. When subsequently the performance was repeated through three devastating hurricanes in the early fall of 1954, the traditional carriers of catastrophe covers suffered disastrous losses which went a long way toward eating up premiums collected through past years and even decades. It was only natural that many carriers would review their commitments while looking for means to recapture their losses and seek better cushions for future protection. W e witnessed, therefore, the combined effects of shrinking markets and increased rates at the very same time as many primary carriers through the telling effect of the storms came into the market in search for increased protection. Ever since, it has been a serious and troublesome problem for a large number of companies, both primary carriers and the regular professional reinsurers, to find adequate protection through catastrophe covers and retrocessions to protect and distribute their congested liabilities. B y and large, however, the needed capacity was ultimately found largely through the use of "bread and butter" business being offered as collateral inducement. Still more recently individual risks involving values of unprecedented size, and novel unknown hazards potentially involving astronomical values have presented the world's insurance industry with tremendous problems in finding adequate coverage. I am thinking of postwar construction of new industrial plants of giant size, and super liners and super tankers, jet transports of tremendous speed and capacity crisscrossing the crowded air lanes of the world. Above all, however, I am thinking of atomic energy installations for industrial, public utility, and research purposes.

Property and Casualty Insurance M a r k e t

319

" M A N - M A D E " RESTRICTIONS ON CAPACITY

In approaching the problem of placing related coverages for such risks, is it correct and appropriate to talk about the capacity problem as if the actual financial capacity were limited ? I think not. In my opinion, the capacity by and large is there, it remains to be tapped. The limiting factors are not to be found in the lack of financial strength. The difficulties and restrictions are largely "man made" and "God given." Talking first of the "man-made" restrictions, they are largely, as I see them, related to the following factors. First, insurance rates arc inadequate. Anyone who has ever been charged with the task of placing a catastrophe cover will probably find that at a certain rate he can complete his covers up to 50 per cent, or perhaps even 75 per cent. From there on the going may occasionally become tough and the task may appear impossible. There is little doubt in my mind, however, that in nine out of ten cases he will find additional markets and complete the cover if he offers even a moderate increase in rate. Lack of capacity, therefore, is only relative and is more a symptom of a basic condition; in other words, it is an effect rather than a cause. The cause is principally to be found within a rate structure which by tradition is thin and by force of habit and pressure is slow to adjust to new conditions as they are being recognized. Here again the problem does not center around or originate within the field of catastrophe covers in and by themselves. Such rates, in turn, are dependent upon and influenced by the conditions governing rates of primary insurance. In most well developed countries rates are based upon a vast spread and a fine and thorough distribution creating a balance which by and large works almost to perfection. The bulk of the business is written at rates with only minute allowance for catastrophe hazards and shock losses. Continuing for a moment to look at the typical American fire and extended coverage field, we find that extended coverage, when introduced as a common mass product, was looked upon as a minor, convenient and supposedly "innocent" adjunct to the standard fire insurance policy. In many areas it was sold at a purely nominal rate because apparent evidence and available statistics did not point up the extent to which it turned out to be "loaded with dynamite." Only in a few areas such as, for instance, Florida and Texas had hurricanes been sufficiently numerous and severe to establish extended coverage rates with real fat on their bones. In such areas extended coverage rates—in spite of deductibles, restricted forms and strict building codes—reached levels where they even exceeded local fire rates. Along the east and northeastern shores it is only in very recent years, following the holocausts of 1950 and 1954, that extended coverage rates and forms have taken more fully into account the elements of violent cycles present in the field.

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Similarly, fire rates have been under pressure partly through increased competition, but largely also because regulatory bodies and authorities have deliberately restricted in their rate-making the factor for catastrophe occurrences. Because such rates, both for extended coverage and fire insurance, have been and still are largely very thin they have affected and severely restricted the ability of primary carriers to pay premiums for their catastrophe covers of a size and scope sufficient to attract catastrophe carriers. This condition is particularly obvious in the case of smaller companies with a portfolio largely localized within the limited east coast areas. If they individually were to pay rates for catastrophe protection based on their own direct experience in recent catastrophes they just simply could not live with such rates and still hope to make a profit. This condition has been allowed to develop to the point where also individual risks of giant size are rated without proper regard to their own inherent catastrophe elements. As a result, genuine risk taking has become a lost art and a difficult function pardy because too many underwriters have been too busy and too happy producing nice even results from the run-of-the-mill business, and partly because the bigger and giant risks have paid premiums too low to justify large commitments on the part of individual underwriters and too low to cover the cost of the other alternative, being diffusion in the world markets. Second, and perhaps even more important, tax regulations in most parts of the world have failed to recognize the cyclical nature and catastrophe elements in most branches of insurance. In hardly any country is it possible for underwriters to set aside out of pre-tax short-term profits adequate reserves to meet the many vast and unknown catastrophe hazards which sooner or later will manifest themselves here or there. The moment tax authorities generally, at the firm and intelligent prodding of underwriters, will recognize such legitimate needs and permit establishment of catastrophe reserves, and the moment underwriters would recognize such reserves as part of their "working capital"—to draw on in case of need, and not treat them as holy cows in sacred pastures—many current rates would prove to be largely adequate to expand substantially current market capacity. Third, underwriters generally have largely failed in upping their commitments in line with decreased monetary values and increased premium volume and business spread. Too many insurance companies are writing more or less the same gross and retaining the same net lines expressed in monetary terms as they did ten or fifteen years ago, in spite of the fact that their assets and premium volume have increased many-fold along with values generally. In other words, their physical risk exposure has been relatively reduced while their monetary lines have remained largely undisturbed. Fourth, on the international scene too many restrictions exist in the form of deposits for admission to markets, guarantee funds, retention of premium and loss reserves, et cetera, inhibiting flow of business, and restricting the liquidity and capa-

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city of active or potential reinsurers. Far too often such requirements are dictated more by reasons of convenience, tradition and the ceding companies' investment benefits, than b y genuine needs f r o m a pure insurance point of view. Efforts should be made to recognize generally certain countries as representing such safeguards and guaranties—from the point of v i e w of government supervision, currency stability, and economic strength—as to do away with a good part of such deposits for guarantee and reserve purposes. Fifth, factual knowledge with respect to hard to place lines is frequently lacking badly, resulting in potential commitments being restricted or precluded just because underwriters prefer to err on the conservative side. All too often distant markets are reached not only with superficial information but also with a minimum of time in which to take a decision. Sixth, contact and communication reciprocally between big, sound and stable insurance markets are largely underdeveloped. Many potentially promising lines of communication are lacking altogether in spite of modern cables and air mails, largely again through the inadequacy of rates to justify the extra effort required for the ultimate distribution situations often call for. The contacts established and the views exchanged at a conference such as this should by themselves go a long way towards extending and improving communications with larger markets as a result. Seventh, a few unscrupulous individuals or firms acting as self-styled internationalists have made it their business to peddle abroad upon innocent markets business which by its very nature—insufficient rates, sloppy underwriting, fraudulent practices, or general deceit—would be unpalatable in the eyes of local and more sophisticated underwriters. Such practices deliberately aim to capitalize on the ignorance of "innocents abroad" and the ultimate effect has been to cause burnt fingers, shock, and suspicion towards foreign offerings with further restrictions of capacity as an added result. From time to time, for instance, American business purporting to be conventional and orthodox is offered abroad under the plausible pretense of limited capacity. Very often such offers have been tinged by elements too obviously unattractive to make the business touchable at home. In some cases the financial structure has been wholly inadequate and even bordering on bankruptcy. In other cases, the men behind them have been smart operators looking for their own quick profits through deliberate deceit. It would be a good rule for our foreign visitors, when such offerings are received, to check with established sources of reference who are both ready and happy to be of help. I am sure, in fact, that any one of the forty-eight Insurance Commissioners in the United States would welcome such direct inquiries. Within the last year alone many foreign markets have witnessed the offering identified with a certain province on this side of the Atlantic though the company never had even obtained a license to operate as an insurance company in the very province where their official address purported to be.

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This questionable practice is not at all a one-way process. It may intrigue and perhaps amuse our foreign visitors to learn that the American market in tum is being increasingly canvassed and even flooded with offers of such dubious and if not even notorious business as Italian hail treaties and French third-party liability excess of loss covers. In Europe, of course, no sophisticated underwriter in his right mind would entertain such business offers on their own merits. The philosophy behind such odd international efforts to capitalize on distances and ignorance violates that very code of honour without which reinsurance business nationally and internationally cannot prosper and grow. The culprits in this picture must be made to realize that reinsurance is no cure for basic ills. It can at best postpone the day of reckoning for all concerned. In the process of fighting the tide and postponing the ultimate renovation required, they are only aggravating primary shortcomings and are helping to restrict the very capacity which healthy business legitimately needs. All of these factors are "man-made" restrictions limiting or hiding the financial capacity which, so to speak, physically is there, theoretically and technically available to cope with most genuine and deserving requirements. They are imposed partly by government authorities, partly by other regulatory bodies, and partly also directly by people in the very business of underwriting. We should all, individually and collectively, consider it a challenge and a duty to work for the removal of these restrictions or for an improvement in the climate they create.

" G O D G I V E N " RESTRICTING FACTORS

I mentioned, however, that there are also restricting factors which may be described as "God given." I am, of course, referring to the measure of mental and personal qualities granted us all by our Creator. I am thinking, above all, of imagination, vision, courage, enterprise, and energy. If we have any capacity problem at all in the business of insurance and reinsurance, it is largely because those human qualities I referred to have been so unequally distributed. To take a current, concrete example from the local American field, let us look at the progress made toward assuring coverage for risks related to atomic energy. In the United States there are approximately 775 carriers within the stock company field alone. Their assets aggregate approximately $17.7 billion, and their surplus $7.8 billion. Of these, 212 companies (27 per cent) participate in either one or both nuclear energy pools (the one for property damage, the other for third-party liability). While these participants represent 71 per cent ( $12.5 billion) of the total assets, there remain approximately 560 companies with assets of over $5 billion who have taken the attitude that they can and should stand aloof. Speaking only of those companies who do play an active role, their total commitments in the two nuclear energy pools aggregate $75 million. This represents 0.6 per cent of total assets of

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the subscribing companies and 1.25 per cent of their combined policyholders surplus. While serious efforts are going on to enlarge the established capacity, a near exhaustion is evident. As an alternative this truly giant industry is actively calling on the government to help out, in which respect an added capacity of $300 million is suggested. The government, however, in this respect is only a collective name for ourselves in our capacity as taxpayers. I submit that this record is pitiful and that the related philosophy is courting trouble. Lack of insurance coverage is a principal factor in holding back nuclear energy development in this country and perhaps in the western world generally. Similar restrictions do not exist in another camp. W e are in a race for survival and our own vehicle has the brakes applied. We all scream about high taxes and costly government bureaucracy. In this instance, however, the insurance industry with near unanimity admits and professes their preference over private insurance. That so many companies stand entirely aloof is incriminating negligence. That the others approach it so gingerly is a shame. The strength is there, in our assets and our business volume. The weakness is one of statesmanship. It is based on lack of factual knowledge and intellectual interest and on an absence of respect for the tremendous achievements, also in safety aspects, on the part of an army of brilliant and devoted scientists. It places lethargy, tranquillity, safety, and peace above courage and vision and above that particular responsibility which lies in an active realization of the reason for our being in the insurance business. Naturally, we are all working to produce a profit. In the insurance business, however, this must not mean that we are never prepared to take a loss. That is denying our specific "raison d'être." In our chosen field we have also a social and economic function to perform. It is expected of us. Let's not deny it. B y pursuing a negative course, presuming it to be safest, we are courting double trouble. First, in the race of nuclear development we are prepared to start out by handing the other camp ultimate victory. Secondly, by shirking an obvious duty right down our own alley, we are inviting that very reliance upon paternal government which ultimately leads to usurpation of private enterprise functions and ultimately to Socialism. What our industry needs is something akin to a spiritual awakening and a shake out of lethargy and complacency. This movement could well start here. B y contrast the following example from the European field may be of interest especially to American underwriters. In Germany the Volkswagen Works have three principal locations with insurance coverages in the aggregate amounting to about U.S. $500 million. At the largest location, Wolfsburg, the fire insurance alone amounts to roughly $300 million. The other location at Hanover carries fire insurance in the amount of roughly $40 million, and the third at Braunschweig approximately another $40 million. The use and occupancy insurance on

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all three locations combined amounts to over Si 15 million. The probable maximum single loss is estimated at approximately $50 million (property damage and U. and O. combined). These insurances have actually found a market. Why ? First, because the rates are considered adequate. Secondly, because in Europe lines of communication are effective. I leave it to my fellow American listeners to judge whether similar insurances could have been placed readily if they originated in this market. It may be of interest to note, incidentally, that one giant European carrier is reported to hold for net account over-all $ 1 4 million. That, I submit, reflects statesmanship. There are in this country a large number of high valued risks consisting of bridges, dams, tunnels, and art collections, which are designated as "target risks." The purpose of this designation is to eliminate them from the normal obligatory reinsurance treaties. The reason behind this thinking is simply that reinsurers generally do not want to be over lined through cumulation from several and unknown sources. The net effect, however, is to reduce the market's capacity. There are, however, in this country and in the world generally a vast number of similarly giant risks of the same type or representing industrial, public utility, municipal, research, or academic institutions where global markets could all play a constructive, active role. If attempts were made and energetically pursued, an informal pool of innumerable insurance and reinsurance companies the world over— carefully selected by strength and security—could handle such risks with comparative ease, provided they were approached and used with sufficient frequency to establish a minimum of balance and spread. What this whole insurance industry needs, here and abroad, is an expansion of thinking and acting along international lines. Capacity problems have existed in the past in specific forms in many spheres. Each time they have been solved ultimately in their acute forms. At the moment we are facing specifically today's problems. They will be solved and will disappear ultimately. Through meetings such as this, repeated and intensified in search of contact and solutions, that element of time could be materially shortened. The capacity is there, it remains to be tapped.

The Reinsurance Market Today by Jaroslav Turna*

While the reinsurance market today is capable of absorbing any major catastrophe, it is no longer willing to support insufficient primary premium rates. It is perhaps misleading to speak of a "reinsurance market" as an existing institution because the only link between the components of the market is the fundamental principle of reinsurance, that of "good faith." Nevertheless, it has concrete form and can be defined as the aggregate financial strength of all companies accepting reinsurance business. TECHNICAL FUNCTION OF REINSURANCE

The financial strength of primary companies, reinsurers, and retrocessionaires tied together with innumerable individual links has supported such large losses as Mithoiz and Kemi in Europe, the Livonia loss in the United States, and the Andrea Doria catastrophe on the high seas, without perceptible strain. Individual large losses customarily occur in branches which are reinsured on the traditional surplus and quota-share basis. These branches operate on the "average clause," implying the principle of "following the fortunes" between reinsured and reinsurer and well as between insured and insurer because in the event of rising prices, the insured is compelled to increase the sum insured in order to avoid the penalty of the average clause. It can be said that individual large losses are supported within the traditional pattern of reinsurance, i.e., to spread through innumerable channels to the widest possible area, the burden of loss arising out of fortuitous events. FINANCIAL FUNCTION OF REINSURANCE

The financial function of reinsurance is to set aside monies to meet the increasingly complex events which are associated with the development of our modern economical, political, and social life. O u r epoch has been characterized by a steady rise in the price in industrially advanced countries as well as an intentionally fostered rise in the standard of living in underdeveloped countries. This development has inevitably exerted a direct and strong influence on insurance and reinsurance. W i t h the development of modern transportation, such as the automobile and • J o i n t Manager, Assicurazioni Generali, Trieste. 325

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the airplane, third-party liability insurance has attained an importance comparable to that of the classical forms of fire, marine, and life insurance. O n the other hand, insurance itself has progressed steadily and is constantly widening the scope of its protection. A typical example is the extended coverage and allied risks written in connection with fire insurance. These branches are still teen-agers and have been "nursed" by reinsurance since their birth. The reinsurance market can now begin to look back upon sufficient experience from which to draw conclusions for further action to be taken in these new lines. THIRD-PARTY LIABILITY INSURANCE

The handling of third-party liability insurance is one of the most difficult problems of reinsurance today. This branch is "non-average" insurance and as such is very sensitive to the slightest changes in price structure. Claims are numerous and increase automatically with rising costs. Although the increase in any one claim may not appear significant, in the aggregate such claims total alarming amounts. The majority of the liability risks are not particularly suitable for surplus selection; consequently reinsurance protection on such risks has rapidly changed from surplus to excess-of-loss coverage. In this type of coverage, the principle of having the reinsurer "follow the fortunes" of the ceding office no longer applies because the reinsurance premium is calculated direcdy on the experience of the larger claims only and is no longer linked to the primary premium paid by the insured. The total premium income represents the only constant item against which a percentage is applied to determine the reinsurance premium. With the increase in prices, a larger number of claims exceed the underlying retention of the excess-of-loss cover. As a consequence, therefore, the reinsurers are required to bear a higher proportion of the total losses than was calculated originally. The increase in the primary premium is a slow process and goes practically entirely to the benefit of the primary company because the reinsurer's percentage share of such premiums remains far behind the increase in his share of the losses. The primary company thus has the advantage of the increased premium income as well as of the larger discharge of the losses on the reinsurers. Thus, the primary companies are able to face a prolonged period of insufficient premium rates until such rates are adjusted, whereas the reinsurers continue to suffer, i.e., to finance the business. This situation has persisted in recent years. When the primary companies began to show profits again on their net retention, the situation became ripe for a stiffening of the reinsurance market and appropriate steps to improve the position of the reinsurers began to take place. One of these steps consisted of the refusal by reinsurers to accept underlying retentions which did not bear a reasonable relationship to the price-inflated premium volume of primary companies. Another step has been a rise in the reinsurance premium rate.

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The type of cover which applies over an underlying retention that is so small that a large percentage of excess claims is almost certain to occur is called a"working cover." Such a cover protects the primary company against increases in the number of small excess claims as well as against small increases in prices. Recently, the working cover has developed into a new form by the introduction of a kind o f franchise on the excess losses. B y this arrangement, the ceding office retains for net account, the losses and portions of the losses up to the underlying retention and, in addition, a certain pre-ñxed amount of the aggregate excess losses. This amount is fixed either in a lump sum or as a percentage of the subject premium in which case it also functions as a stabilizing factor. This arrangement reduces the payments of claims by the reinsurer and permits a considerable reduction in the excess-of-loss premium leaving intact the protection of the reinsured. There are signs that this form of excess-of-loss cover, which could be termed "stop on shock loss cover" is gathering momentum and will soon represent a typical form of reinsurance. EXTENDED COVERAGE REINSURANCE

A single windstorm or earthquake generally results in a large number of small claims. The only effective form o f reinsurance for extended coverage is the "shock loss cover" whereby one windstorm or one earthquake is considered to be one event. In recent years, the primary companies and reinsurers have suffered prolonged and heavy losses on extended coverage, demonstrating that primary premium rates in this line of insurance were not sufficient and that its underwriting practices were too Uberai. Primary companies had deficits on their net retentions even though the reinsurers supported the larger portion of the claims. As a consequence, the primary companies have increased their premium rates and introduced deductibles, thereby eliminating a large number of small claims of a nuisance nature. The reinsurers have increased their premium rates as well. The process of adjustment and improvement in this business is difficult because the reinsurers have not as yet developed a recognized form of excess-of-loss premium rating. There is considerable controversy as to whether a statistical pattern for this kind of risk exists on which premium rate quotations can be based. THE COST PROBLEM OF PRIMARY COMPANIES

Apart from the technical suitability of excess-of-loss coverage in certain branches of reinsurance, the cost problem of primary companies has fostered a shift from surplus to excess-of-loss treaties even in insurance lines which were traditionally reinsured in the surplus form. Surplus reinsurance requires tedious detailed work on every policy, resulting in considerable cost. Moreover, the more scientific approach to reinsurance undertaken in recent

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years and the greater availability of statistical experience has resulted in the development of reinsurance forms that provide the same if not better protection than surplus reinsurance, with the added advantage of considerable savings in working cost. These are the co-called "automatic treaties." In form, they belong to the excess-of-loss type of treaty, but they are suitable for reciprocal exchange. RECIPROCITY

The growth of insurance companies led to an increase in the reinsured part of their premium volume. Soon such cessions were regarded by insurers as an undue loss of premium. To compensate for the outflow of premiums, primary companies began to accept reinsurance on a reciprocal basis. The reciprocal exchange of business has contributed to a considerable extent to the formation of today's international reinsurance market. The accepted reinsurance business had to be retained for net account if reciprocity was to retain its purpose and therefore the accepted shares had to be small and numerous. This contributed to the splitting up of reinsurance treaties into many small shares. Thus, large primary companies have built up scores of relations on a reciprocal basis all over the world. Similarly, due to reciprocity, many primary companies have entered the reinsurance business and have enlarged the reinsurance market. At the present time, the bulk of surplus reinsurance is handled by primary companies on a reciprocal basis. Thus, reciprocity has, in a sense, split the market into two sections, one composed of primary companies exchanging reinsurances and the other of professional reinsurance companies and Lloyd's accepting reinsurance of a more hazardous nature which cannot meet reciprocal requirements. BROKERS

In speaking of today's reinsurance market, it is not possible to ignore the brokers. It is through their efforts that reciprocal exchange has spread all over the world. They have also been instrumental in stimulating many companies that traditionally handled surplus treaties to enter the excess-of-loss field. The great demand for coverage in this more hazardous kind of reinsurance has provided new opportunities but has also caused some disappointments and greater caution. The brokers now show a keen interest in the results of research work on reinsurance and are frequendy able to function as expert advisers in reinsurance matters. RESEARCH WORK IN REINSURANCE

Early reinsurance literature referred principally to its legal aspect but in the postwar period, technical studies on reinsurance have been published which describe practical aspects of the business and its treatment by statistical and mathematical methods.

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This literature although empirical presents systematic analyses of surplus and excess-of-loss reinsurance problems, so that where up to now training in reinsurance required a prolonged apprenticeship, today advance preparation is possible. Research work has produced new kinds of reinsurance treaties, the most remarkable one being the "Ecomor" by Mr. Thépaut and the "Automatic Treaties" by Mr. Richard and Mr. Lutfalla. This latter form is a particularly attractive one because it satisfies the requirements of full protection, is suitable for reciprocal exchange, functions very similarly to a surplus treaty, but has practically no working cost. A number of companies in the United States have changed from surplus treaty protection to an automatic cover, since under surplus protection, the net retention yielded adverse results, whereas surplus reinsurers have made profits. If this trend continues, it may mark the beginning of far-reaching changes.

AVERAGE COST OF REINSURANCE

The amount of business that passes through the hands of reinsurers is difficult to assess but it can safely be assumed that it totals somewhat more than one fourth of the total worldwide primary premium. The total net expenditure for reinsurance service can be calculated on the basis of the only generally recognized measurable item in reinsurance, i.e., the brokerage. This amounts on the average to 1.5 per cent in surplus reinsurance and to 10 per cent of the reinsured premium in excess-of-loss reinsurance. If brokers receive this reward for their services it can be assumed that reinsurers receive approximately twice as much for their services and underwriting risk, i.e., 3 per cent and 20 per cent respectively. The total estimated expenditure thus amounts to 4.5 per cent in surplus and quota-share reinsurance and about 30 per cent in excess-of-loss reinsurance. Applied to one fourth of the total primary premium, a cost of 4.5 per cent for a reinsured premium works out to 1.125 per cent. This percentage of the primary premium is probably also the same for excess-of-loss coverage arranged to give similar protection as surplus reinsurance in a specific case. In fact, 4.5 per cent of 25 per cent surplus premium is equal to 30 per cent of 3.75 per cent excess-of-loss premium. About 15 per cent of the surplus treaty premium will yield equivalent protection under an excess-of-loss cover. This has been confirmed by practical experience. The gross profit of the reinsurers is the cost price paid by the primary companies to the reinsurers for full reinsurance protection. This price is in the neighbourhood of ι per cent of the gross primary premiums. Since a large proportion of this price, except for the brokerage, is recovered by reciprocity, it can be concluded that the cost of reinsurance protection today is less than 1 per cent of the gross worldwide primary premium income.

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During the postwar period several European companies entered the United States market by branch offices or by affiliated companies. Recently, a few United States companies have established branch offices in Europe and elsewhere. Many of these companies transact reinsurance business, making it possible to build up a portfolio rapidly and at a comparatively low cost. The early experience of these companies was rather difficult because as newcomers they had to accept the more readily available hazardous business on competitive terms, such as extended coverage and third-party liability business on an excess-of-loss basis. After some initial adverse results these companies are today in line with their better established colleagues and are showing stronger restrictive tendencies and stiffer terms. TODAY'S MARKET

As mentioned above, the reinsurance market is a rather nebulous concept. Its members comprise, roughly, according to a recent estimate, about three thousand companies that accept reinsurance all over the world. About one hundred and fifty of these are professional reinsurance companies and Lloyd's. The principal center of the reinsurance market continues to be Great Britain. Lloyd's and practically all of its strong insurance companies transact reinsurance business as well. The United States reinsurance market is growing rapidly and is beginning to absorb reinsurance business from abroad. Undoubtedly, the branch offices of European companies in the United States will contribute to the building up of the technological tradition of reinsurance. On the continent of Europe, Switzerland, France, Germany, Denmark, and Italy are reinsurance centers of international importance. With the coming European unity, further integration may be expected with greatly enlarged capacity and authority. In Italy, an embryo International Rating Office for the quotation of excess-of-loss covers already exists.

PART Vili The American Consumer Views Insurance

Attitudes of General Public by Donald M . H o b a r t *

THE INSURANCE CONSUMER

As far as the insurance industry is concerned, consumers take many forms. They may be industry purchasing insurance of all kinds for its many and diverse needs; they may be commercial establishments selecting and buying policies for their businesses; they may be professional people exercising protection for their professional future ; or they may be millions of families or individuals buying and using insurance for the many important phases of their existence. Whatever they may be, corporate or business-wise, whatever their reasons for needing insurance in their business or profession, they are people. We must therefore view our consumers as people—men and women, young or old or middle aged. They are always persons—sometimes an executive, a retailer, a doctor, a housewife, a student, an ambitious young man, or an older man nearing retirement. Always the consumer, whether a policyholder or a prospect, is an individual, though he may be functioning as a professional man or the decision-making representative of a commercial or industrial organization. As himself or as an institution or organization, he expresses his own opinions and attitudes. Specifically, the consumer may express his opinions about insurance in several ways. His attitude may be expressed through direct statement which he makes to others or it may be expressed through his actions which, proverbially, speak louder than words. These statements and actions, expressive of consumer attitudes toward insurance, are of many different kinds. They are of such importance to you and your industry that I want to discuss them with you here today. For it is in this way that we can best view the consumer's real reaction to insurance. These attitudes and actions of the consumer relating to insurance can be grouped as follows: (1) Purchase or failure to purchase insurance. This applies to insurance of all kinds. (2) Legislative decisions, where a political body representing the public takes action involving insurance. (3) Changes in the social structure brought about by the desire of consumers for greater security. * Senior Vice President and Director of Research, The Curtis Publishing Company, Philadelphia. 333

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(4) Jury decisions where a verdict for or against an insurance company is involved. (5) Actions taken by the insurance industry itself in response to the measured or felt needs of consumers. Suppose we discuss these areas which I have just described. First, there is the consumer's purchase or failure to purchase insurance. PURCHASE OF INSURANCE

If the consumer's attitude toward and opinion of insurance and insurance companies can be measured by his purchases, his opinion o f insurance is very high and seems to be increasing. In both life insurance and in fire and casualty insurance, the growth has been phenomenal. At the end of 1956, there were 106,000,000 people in the United States holding life insurance policies. If all forms of life insurance are taken into consideration—National Service life, savings bank, fraternal, assessment and other types, as well as those with insurance companies—the number owning is 118,000,000. These people (106,000,000) owned $415,000,000,000 of life insurance with the Ufe companies. Average family ownership stood at $7,500. The total assets of life insurance companies totaled $96,250,000,000. Contrast this with 1940, when total life insurance in force was only $115,530,000,000 and life insurance ownership per family was only $2,700. It has been forecast by Holgar J . Johnson, President of the Institute of Life Insurance, that insurance in force will reach a trillion dollars around 1970, the phenomenal advance continuing into the future. There is a comparable story of growth in the fire and casualty fields. Casualty, surety, and fidelity premiums increased 437.2 per cent from 1049 to the end of 1955. The rate of growth since 1946 has been even more marked. Total premiums for the major lines at the end of 1955 were $6,296,000,000. Purchases of insurances such as these indicate that the consumer is definitely insurance-conscious, that he wants insurance, and that he translates those wants into purchases. Lest these figures seem to prove such total approval that the insurance industry can feel completely complacent, let me remind you that in 1940 the ratio of premiums of life insurance to disposable personal income was 5.1 per cent. It was even higher—over 7 per cent—during some of the depression years of the 1930's when individual and family incomes were low. In 1955, only 3.8 per cent o f disposable personal income went for paying life insurance premiums. There is at least some indication here that other products and services are competing very successfully with insurance for the consumer dollars. While the consumer has indicated his approval of insurance by buying more of it, the industry must ask itself whether or not it is satisfied with the consumer's idea of adequacy as it relates to all kinds of insurance. Considering just problems o f

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inflation, do consumers now owning various kinds of insurance have adequate amounts or coverage broad enough to accomplish the individual's or company's future objectives ? The survey of consumer expenditures conducted by the Department of Labor among U.S. urban families and analyzed and tabulated by the University of Pennsylvania, showed that during the year studied (1950) almost 72 per cent of these families made expenditures for life, endowment, or annuity insurance premiums. Not quite 4 per cent paid premiums for personal liability insurance. In the automobile field, only 14 per cent paid premiums on policies covering public liability, bodily injury or property damage; 7 per cent paid premiums on automobile fire and theft, and only 4.1 per cent paid on automotive collision insurance. In every category of insurance, the percentage of families making expenditures for premiums increased as family income increased. For example, only 31.3 per cent of families with incomes under $1,000 reported expenditures for life, endowment, or annuity insurance. This contrasts with 66 per cent of families with incomes ranging from $2,000 to $3,000. In the $5,000 to $6,000 family income group, nearly 83 per cent paid premiums for life, endowment, or annuity insurance and 88.7 per cent of the families in the $7,500 to $10,000 income group. Comparable percentage increases by rise in family income show across the board for all types of insurance. These figures, based on technically sound research, indicate certain important facts to the insurance industry. In every classification, the insurance market is selective. It is families in the above-average income groups who are your best customers. They are your most insurance-conscious policyholders and prospects. Yet are purchases made even by these above-average income families adequate to their needs? The Life Insurance Agency Management Association studied special tabulations from this same Department of Labor survey of consumer expenditures. Their survey found this same increase in expenditure for life insurance by above-average income families, but it did not find vast amounts of money expended even at the upper end of the scale. Expenditures for individual life insurance, for example, ran from $21 per year at the low end of the family income scale to $318 in families with income of from $7,500 to $9,999 and rose again to $624 in families with incomes of $10,000 and over, but these families were spending proportionately more for other products and services. The groups which spent $318 for individual life insurance also spent $1,784 in housing and household operation, $980 for personal care and clothing, $376 for medical care, $491 for recreation, reading, and education, and $139 for alcoholic beverages. This highest income group, which spent $684 for Ufe insurance, spent $3,336 in housing and household operation; $1,503 for personal care and clothing; $450 for medical care; $843 for recreation, reading, and education; $231 for alcoholic beverages.

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T h e better-than-average families are the biggest insurance customers. T h e need f o r insurance increases w i t h the added responsibilities and liabilities o f such families. Thus, the insurance industry must m a k e certain that the insurance expenditures o f these families are m o r e nearly commensurate w i t h their insurance needs. T h e report, The Life Insurance Public, s h o w i n g results o f the first n a t i o n w i d e survey o f the ownership o f life insurance in the U n i t e d States, made f o r the Institute o f L i f e Insurance b y the S u r v e y Research C e n t e r o f the University o f M i c h i g a n , has just been released. This survey shows that life insurance ownership increases w i t h i n c o m e , education, and higher occupational status. In the U n i t e d States, the p r o p o r t i o n o f adults o w n i n g at least $5,000 o f individual life insurance rose f r o m 4 per cent in the lowest i n c o m e g r o u p to 31 per cent a m o n g those w i t h f a m i l y incomes o f $7,500 or m o r e . O w n e r s h i p o f at least $5,000 o f life insurance rose f r o m 6 per cent w h e r e the f a m i l y head had a grade school education or less, to a b o u t 27 per cent w h e r e the f a m i l y head had some c o l l e g e education ; f r o m 20 per cent for craftsmen and f o r e m e n to 40 per cent f o r professional people, and some 44 per cent for the managerial and self-employed.

LEGISLATIVE DECISIONS INVOLVING INSURANCE

N e x t let us turn to the consumer attitude t o w a r d insurance as it is reflected in legislative decisions. A s a quasi-public trust, the operations o f insurance companies, as y o u so w e l l k n o w , are subject to stringent g o v e r n m e n t a l regulation. T h e various states in w h i c h y o u operate h a v e laws g o v e r n i n g the w r i t i n g o f insurance and the investment o f the funds y o u hold in trust for y o u r policyholders. Public L a w 15, passed b y Congress in 1945, decided, in effect, that the states w o u l d retain control o f the insurance companies instead o f their being placed under the supervision o f the national g o v e r n m e n t . T h a t is, our c h i e f legislative b o d y , representing the p e o p l e — A m e r i c a n consumers, policyholders, and prospects o f U . S . c o m p a n i e s — d e c i d e d that insurance companies are d o i n g a g o o d j o b as they have operated f o r years and that they should continue to operate in the same fashion. That, it seems to me, is tantamount to broad consumer and c o m m u n i t y approval o f y o u r industry. B u t y o u must be diligent to maintain this approval in the years to c o m e , for the m a k e - u p o f Congress changes and ideas change q u i c k l y . O n the other hand, since 1954, the fields o f accident and health insurance h a v e been under rather close scrutiny b y the Federal T r a d e C o m m i s s i o n . In 1954 c o m plaints w e r e filed against the advertising o f 17 companies. Later complaints raised the n u m b e r to 41. In D e c e m b e r 1955 the insurance industry drafted rules g o v e r n i n g health and accident insurance advertising in the h o p e that these rules w o u l d b e adopted b y the various states. T h e F T C handed d o w n its decisions before this c o u l d happen. It is not y e t clear w h a t jurisdiction the F T C has over insurance or w h e r e

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the regulatory power, if any, resides. The situation, at any rate, indicates something less than complete approval of one phase of the insurance operation. Another example—since 1927 Massachusetts has had compulsory automobile liability insurance. The state sets minimums for both personal liability and property damage. N o car owner may obtain his license plates in Massachusetts unless he presents proof that he carries the legal amounts of insurance. The insurance is written not by the state but by private companies. T o this extent the Massachusetts law, enacted thirty years ago, showed consumer recognition of the value of private company insurance. I am not unaware of the difficulties involved and the shortcomings that exist in such a situation. Since its inception, there have been some 800 bills introduced in the Massachusetts legislature to change this law in one way or another. State control of liability insurance can lead to state insurance, though it has not in Massachusetts. The tendency, when the state controls, is to set both insurance minimums and premium rates too low for efficient insurance operation. Such laws do not always operate to prevent accidents, one of the chief concerns of the casualty insurance industry. Last year insurance companies paid out for death and injury claims in Massachusetts nearly $10 million more than they received for this purpose in 1956 premiums. Let me ask a question at this point. Was the public, in this instance, the Massachusetts consumer, made fully aware of these difficulties ? Did the insurance companies tell the consumer what was involved? The problem, however, is not confined to Massachusetts. N o w N e w York State has passed a similar law—the Motor Vehicle Financial Security Act. Georgia, South Carolina, Maryland, Virginia, and Pennsylvania are n o w considering similar legislation though many other states have considered the matter and decided against compulsory automobile liability insurance. May I repeat my question. Are consumers across the nation being adequately informed by the insurance companies of the facts of this situation ? CHANGES IN THE SOCIAL STRUCTURE BROUGHT ABOUT BY THE CONSUMER'S DESIRE FOR GREATER SECURITY

A third area in which w e can measure consumer attitude toward insurance is in changes in the social structure brought about by the consumer's desire for greater security. It is characteristic of our day, I think, that in the midst o f unprecedented economic prosperity, w e are fearful. All the figures w e can adduce and all the most reliable forecasts w e can make indicate a prosperous condition of life in the United States today and point to increased prosperity and consequent enjoyment in the future. Y e t w e hear n o w and then pessimistic pronouncements of danger and coming doom. There is, of course, a good historical reason for recurrent hesitation and fearfulness.

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In the 1920's we enjoyed unthinkingly, even extravagantly, a period of great prosperity. It was followed by the crash of 1929, then by the long and difficult depression period of the 1930's when many people suffered greatly. What people experienced and knew of the experience of others instilled a deep fear. A significant result, which brought about sweeping social changes, was the desire, thus deeply rooted, for greater security for the individual consumer and his family. The consumer wanted assurance, protection insurance against the recurrence of such a disaster. The consumer, in fact, demanded it. For part of the answer he looked to the Federal government, and the government responded with national Social Security. The nineteenth and the early twentieth century idea that the consumer looked only to himself to struggle in competition with his fellows to obtain a competency for his family and, if possible, to leave on his death some financial security for his dependents, did not work very well during this depression of the 1930's. A depression-frightened people wanted some guarantees. They sought safety in Social Security and in group insurance of various kinds. When Social Security started and for some time thereafter, there were fears among segments of the insurance industry that government security plans would detract from the business of insurance companies themselves. What happened? Security-hungry consumers, with money to spend, have looked upon Social Security only as a base, a provider of a subsistence income after retirement and have vastly increased their purchases of other kinds of insurance to augment their income in their later years. The insurance industry made new retirement policies of many kinds available to them, so that now American families are receiving nearly $25,000,000,000 annually under established family security programs designed to meet the economic losses of death, disability, retirements, and unemployment. The insurance industry must be alert constandy to the dangers of the creeping and engulfing phases of the welfare state concept in our national government. Just recently Social Security Commissioner Charles Schottland was quoted in a Chicago newspaper as saying savings for a rainy day and the cultural beliefs about individual responsibility are hangover ideas from an earlier economic era which, as he said, "hinder the fullest use of social legislation." This comment drew a protest to President Eisenhower, from Mr. R o y Marr, President of the United States Savings and Loan League, in which he said that Mr. Schottlands opinions "constitute one of the most insidious attacks on the cherished American tradition of individual thrift and self reliance that has ever been made by a high official." He went on to say that Mr. Schotdand "apparently subscribes to the theory that all Americans should be, as they approached advanced age, complete wards and dependents of the Federal government." Such thinking, carried out in a broad policy, can do great harm to the country

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and to the insurance industry. The industry must see that consumers are adequately informed on this situation. Another example—National Service Life Insurance—government-issued

to

members of the armed forces, was looked upon as a threat to the insurance industry. W h a t happened? Instead of using their NSLI as a substitute, many ex-service men and women have used it as a base in their insurance programs. They have supplemented their government insurance by more insurance with the established companies. In both instances, the consumer has looked to the insurance companies for the real and adequate fulfillment o f his insurance needs. I cannot leave this aspect o f the subject without pointing out one significant fact. It is fortunate for the consumer in another way that the national community, despite impingement by government, still looks to the privately owned and operated insurance companies for real protection against all the ordinary and extraordinary hazards o f life. Total taxes, state, local and Federal combined, paid by life insurance companies alone in 1956, were well over the half-billion mark.

JURY DECISIONS

There is another area in which consumer opinions are important to the insurance industry. I refer to jury decisions. Plaintiffs in damage suits for death or injuries are getting increasingly high verdicts in our courts. In the ten years between 1941 and 1951, for example, verdicts for the plaintiff in the N e w Y o r k Supreme Court increased from an average o f $3,489 to $9,695. This was an increase of 149 per cent, while during the same period the cost o f living increased only half as much. O f course, the costs of new cars, hospital charges, and repair charges have all skyrocketed, but they have not climbed nearly as much as these jury decisions. Undoubtedly there are cases where such high awards are justifiable. There are many in which they are not. These lavish judgments are often awarded because juries—made up of consumers and actual policyholders themselves—are confused. They seem to feel that insurance companies are vague, unreal, soulless institutions worth billions o f dollars; that judgments against them hurt nobody. They forget that insurance companies merely hold consumer funds—policyholder funds—and that unconscionable damages only contribute to high and increased premium rates, while the insurance companies are making every effort to keep their rates within reasonable bounds. This, I think, is a clear case of consumer lack of information or the possession o f misinformed prejudice. W h a t are you doing to correct this situation through proper education of the consumer ? Y o u know, as I do, of all the efforts made by the casualty and liability companies to uncover and expose fraudulent claims. The Claims Bureau o f the Association o f Casualty and Surety Companies, through its investigators, is constantly at work to

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prevent the success of such claims and to protect the insurance companies against these criminals whose attempts are often encouraged in claims-conscious larger cities by lavish jury verdicts. The work of the insurance investigator of this type is fascinating when it appears in fiction or on a dramatic program, but I do not believe the consumer fully understands that in defrauding the insurance company, the false claimant is defrauding the entire public which directly or indirectly pays for these spurious claims in higher rates. That is one of the many facts about insurance of which I believe the consumer should be made fully aware by systematic education through advertising in responsible media which reach the intelligent and thoughtful people of the national community. These are the same better-than-average people as measured by education, income, standard of living, occupation, who are your largest policyholders and your best insurance prospects.

INSURANCE ACTIONS TAKEN IN RESPONSE TO CONSUMER NEEDS

It is clear that the consumer has indicated through his purchases that he realizes that voluntary insurance, not government compulsion, is the real answer to his security needs. Also the insurance industry itself has shown real awareness of consumer needs and desires in the new types of insurance coverage it has made available. Not too long ago the consumer could buy only a few well established forms of insurance—straight life or endowment, accident, liability, casualty, to state the case broadly. N o w he has available individual or group policies tailored to fit most of his known wants. Today a life, endowment, or annuity policy may be written practically as the assured wishes. Today policies are available which cover the assured's dwelling, other structures on his premises, his household goods and personal effects, and his personal liability. The same policy protects the policyholder against fire, theft, lightning, wind, hail, explosion, riot, vehicle damage, and smoke. It can also be written to include coverage against vandalism, water damage, the fall of trees, the collapse of buildings, glass breakage, landslides, etc. You have devised new family-group policies, making insurance protection available to the entire family at a low rate. Group accident and health insurance plans have been devised and made so acceptable to the consumer that more and more people realize they cannot afford to be without them. You have developed a new family automobile policy, affording wider coverage and designed exclusively to insure the family car. You have made it possible for the wise man to obtain adequate life insurance for himself and his family—fire and extended coverage insurance on his home; emergency living insurance, which covers expenses if the policyholder has to rent while his home is being repaired; liability insurance for accidents occurring on his

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property; fire, theft, and liability insurance on his car; medical payment and burglary insurance. B y spreading the risk through insurance in this way, it is possible for the informed consumer to protect himself and his family against practically all the normal hazards of life, and to assist him and his family in reaching the living objectives which they have set for themselves. I think the insurance companies have done a splendid job in improving their product and making it available at what are really low prices. This improvement of your products—your policies—must go on constantly in the future. I am not sure that you have done as good a job in making the consumer aware of what is available in insurance policies today—about how little it costs for adequate coverage or even what adequate coverage is in this period of inflation. Policyholders and prospects know some of the facts about what insurance is available and what it can do for them, but there must be more education of the consumer. This educational job cannot be done alone by the insurance agent or the broker. A survey conducted by the University of Michigan, published in 1956, found that only 17 per cent of the respondents had bought some life insurance from an insurance agent in the previous eighteen months and that within eighteen months an agent had solicited some member in only 44 per cent of the families questioned. This is not very often. Insurance cannot depend on busy agents alone to do an adequate job of educating the consumer. A survey which we made at the Curtis Publishing Company some years ago discovered that more than one-third of insurance policyholders couldn't remember the names of the company in which they were insured. In the case of fire and liability insurance, less than one-half knew the company name. Though the percentage seems to have declined since World War II, some people may still be willing to see government insurance or more government control of insurance simply because they have not been told of the problem and had it explained to them. Insurance has permeated many parts of our existence. Insurance has infiltrated human life in the United States at every age and social level, and the whole of our economy. People may know some of the facts regarding insurance protection available to them, but I am convinced that few have any genuine understanding of the extent to which insurance, the invested funds held in trust for the consumer, supports our economy and makes its forward progress possible, contributing directly to consumer welfare. More than half the long-term financing needs of the nation's public utilities are financed through life insurance funds. The shopping center a family patronizes, possibly the development in which they live, may be actualities through insurance investments—and most of the policyholders and prospects who buy in the center or live in the development may be completely unaware of the facts. Insurance is making possible the conversion of atomic power to civilian uses. In a spectacular 12

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advance, a syndicate o f insurance companies have announced that they will insure against radiation hazards on industry-operated nuclear reactors, writing risks o f up to over $50,000,000. W i t h o u t that insurance the reactors could not be built. W i t h o u t surety underwriting many governmental and industrial projects could never even be undertaken. These are some recent accomplishments o f the insurance industry. Y o u r contributions to consumer welfare are widespread and go back over the years. Life insurance examinations aid the consumer b y making him health conscious. It is a truism that such examinations often uncover in time potentially dangerous physical conditions which can be treated. T h e Medical Research Fund supported by a large group o f life insurance companies is continually investigating health problems o f concern to every consumer. The forms o f life insurance which provide for income on retirement or the various annuity plans in operation, relieve older people from strain and w o r r y about their economic status, thus contributing to the consumer's health and well being. Once hideous industrial accidents were commonplace. The first full-time safety engineer was employed b y a casualty company as far back as 1894. Today thousands o f insurance company safety engineers are at w o r k in boiler inspection, n o w routine; in improving protective apparatus, instruments and wearing apparel; making plant accident-prevention surveys; devising ways and means o f keeping men out o f dangers. Once some companies objected. N o w they would not do without the services which have made people at work safer than they are at home or walking or riding. The casualty and liability companies spend millions of dollars trying to keep the rates l o w for industrial plants and keeping the people in them alive and whole. In 41 out o f the 48 states insurance companies administer Workmen's Compensation. Insurance companies, continually devising complete standards o f safety for new machines as they are developed and put into operation, are at the same time inspecting hospitals for fire and other hazards and conducting safety campaigns at the national, state and local level. Insurance not only protects the consumer against the normal hazards o f our speeding and complex modern life, but also plays a major part in making that life livable and in supporting the advances that will make it better. INFORMING THE CONSUMER

If, when you are making contributions such as these to human life—and I have understated rather than overstated the case—there are still consumers with w h o m the insurance company is somewhat less than popular, there must be a reason. There is. The consumer, as industry after industry has discovered, does not approve what he does not understand, what he has not been given the materials to understand. He does not appreciate accomplishments o f which he has never heard, or

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heard but dimly. The consumer does not value contributions to his well-being and happiness of which he is unaware. Perhaps as a quasi-public trust you have one more responsibility—the responsibility of more thoroughly informing the consumer about all phases of insurance and its importance to him. This responsibility of informing the consumer about insurance and the important part it plays in our lives is the responsibility of the entire insurance industry. A few companies cannot do the job alone. With each company doing its individual part, with all of your admirable associations working on this problem, you could influence the situation a great deal through education, promotion and advertising. Companies in other industries—the electrical companies, food companies, drug companies, the automotive and chemical industries, and many others—are increasingly using advertising both to widen the markets for their products and to establish favorable images of their companies and industries in the public mind. I think that insurance, which has so fundamental an interest in maintaining public trust and confidence, must broaden its influence and expand its efforts to educate the consumer. The great power of advertising that the consumer reads and trusts can help insure an industry against public misunderstanding. The consumer has expressed his approval of insurance in many ways—by voluntary purchase, by favoring the insurance companies over government controlled or sponsored forms of insurance, by adding insurance to the minimum protection provided by Social Security, by wide acceptance of group plans of Ufe, accident, and health insurance. Where he has, by awarding excessive judgments in damage suits or by failure to realize the extent to which directly and indirectly he depends upon insurance, displayed something less than complete approval, it is obvious to me that he has spoken or acted in ignorance. Adequate information, aimed at the consumer, is what is needed, in greater and more frequent amounts. As I said when I began to talk today, insurance is one of the greatest human cooperative ventures ever devised by man. As such, it has been generally accepted by consumers and they have been buying it in increased amounts. In other areas, consumer knowledge of insurance is less than adequate. Looking ahead, it seems to me that the leaders of this great industry have tremendous opportunities to contribute even more in the future than they have in the past to the economic and social welfare of the nation and its people. To do this you must improve your services to the consumer and the quality of your product and, at the same time, you must increase consumer faith and trust in this great insurance industry. Wasn't it Abraham Lincoln who said, "Public sentiment is everything. With public sentiment nothing can fail. Without it, nothing can succeed."

Labor's View of Insurance by Jerome Pollack*

SHARING COMMON HAZARDS OF LIFE

Whenever people have associated themselves—whether for religious, social, economic, or political reasons—they have tended to share their concern over the common hazards of life. Even organizations originally established for reasons largely unrelated to these hazards have developed programs of relief and insurance. Where people have formed labor unions to represent and help them in their pursuit of decent living standards, this concern becomes inescapable. People turn to their unions when in need. They expect their unions to develop programs and to support social policies to protect them against the threats to their economic well being. Labor shares with the general consuming public an interest in many forms of personal and property insurance. Its interest is concentrated, however, on the common adversities of life and is likely to judge insurance largely by its performance in these areas. As the hazards of life are essentially similar in most industrial countries, there are many similarities in the programs that have been developed throughout the world in dealing with them. There are, however, important differences which may help reveal the underlying problems more clearly. NEED FOR INSURANCE EXPANSION

The American worker is concerned today with economic security in an expanding economy. Productivity and rising wages alone do not assure security. In some respects they even intensify the problem as higher wages mean greater losses when the worker is unable to work or when work is not available. At a time when reliance on employment has become greater than ever, technological change threatens displacement. Modern medical care is reaching new heights of effectiveness, but families have greater grounds for anxiety over how to assure its availability and how to meet its growing costs. Merely to keep abreast of inflation of those insecurities augmented in an expanding economy requires a degree o f responsiveness and flexibility that has thus far not been built into insurance. But there is today * Program Consultant, Social Security Department, United Automobile Workers. 344

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both need and capacity not only for keeping pace, but for making material improvements. Attempts to assess the remaining causes of poverty have repeatedly demonstrated the need for improved insurance in the event o f old age, unemployment, ill health, disability, and death. Income insurance is food, shelter, and clothing deferred; health insurance in some respects is even more vital. For a number of years, insurance has already been expanding to cover more o f the essential risks of life more fully and for more people. Since 1940, while the national output o f goods and services doubled in constant dollars, the corresponding increase in employer contributions to the old-age and survivors insurance program was fivefold, and to private pension and welfare plans, tenfold. A t its present rate the national product could again double by 1975, with a still further accelerated expansion o f insurance. The challenge to public and private insurance to expand, to develop new forms, new concepts and new methods, may be less conspicuous but no less profound than during the industrial revolution when the modern institution of personal insurance got under way and social insurance was bom.

PRIVATE AND PUBLIC INSURANCE

Labor in America has tended to rely less on legislation in achieving its economic goals, and more on collective bargaining than the labor movements of other countries. This has had a profound impact on its programs for economic security. The United States ventured late into social insurance and although such programs have developed rapidly, especially in providing income replacement benefits, they have never proceeded to cover as many risks as in other countries. With collective bargaining developed more fully and vigorously, American labor has sectored through negotiations a vast private social insurance system dealing with some o f the coverages that are elsewhere often assigned to governmental insurance. In viewing insurance against the risks o f primary importance to labor, the American worker must, therefore, evaluate the strengths and weaknesses of this combined system o f private and public insurance. In America, as elsewhere, unions went through an early stage o f direct insurance. Generally they were able with some degree o f success to provide modest sickness and burial benefits, and occasionally to arrange for medical benefits. But they were usually unable to sustain meaningful protection for such costly contingencies as retirement, long-term disability, or unemployment out of the limited dues that workers were able to allocate. The early union efforts at insurance, therefore, often failed—not so much through actuarial ineptitude but for lack of an adequate financial base for dealing with the pressing and pervasive needs which existed. T o make a significant inroad on the major insecurities of life, additional support was needed. T h e means accepted by labor throughout much of the world for obtaining such

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additional support was social insurance. The authority of government was employed to impose on industry a liability for benefits to disabled or unemployed workmen and for similar social costs. American labor leaders, however, were fearful of the dominance of government and resisted the development of social insurance. As late as 1931, the American Federation of Labor passed a resolution rejecting unemployment compensation. Only under the stress of deepening depression and after private insurance had concluded that there was no way in which it could insure this contingency, was labor driven to support an approach which many of its leaders originally distrusted. Before long, however, labor's support of social insurance was wholehearted and overwhelming. Social insurance set out to deal with most of the risks of greatest concern to the wage earner. In addition to employment injury, social insurance spread successively to unemployment, old-age, survivor, temporary disability in a f e w j urisdictions and, recently, long-term disability insurance. Social insurance now covers the overwhelming majority of the labor force. Its relative capacity to spread is illustrated by the fact that, in spite of the advanced standing of life insurance in this country, the social security system has placed as large a volume of life insurance in force ($344 billion in 1955) as has all private life insurance. Those who deny that social insurance is insurance at all are usually pursuing the tautological definition that only private insurance is insurance. In public insurance, a practical fusion of considerations of need, equity and insurance has been achieved. Crides judging by any one of these criteria alone have missed its significance and its strength. It is hard to conceive of any other means by which an employer and an employee commitment to contribute more than $10 billion annually could have been obtained in the same period of time, or in which protection of this magnitude could have been as effectively addressed to the needs of the lower and middle income groups. In time, however, the limitations of a legislative approach were forcefully brought home to labor. Employers developed defenses against the extension of their liability and insurers resisted the spread of governmental insurance. In face of legislative opposition, social insurance benefits have had to address themselves to demonstrable mass needs at so basal a level as almost to preclude any real app roach to adequacy. T h e wages of workers began to include regular productivity increments and co st-of-living adjustments, but social insurance remained fixed by the rigidities of a legislative system. Workmen's compensation well illustrates the course of events. Its benefits are the highest in social insurance. As it replaced an earlier employers' liability and was près cribed as an exclusive remedy for employment injuries, cutting off access to the courts for negligence suits against the employer, it assumed the greatest obliga-

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tion among social insurances to meet need. Workmen's compensation started out to repay one half or two thirds of lost wages. Although its aggregate payments have increased from $256 million in 1940 to over one billion dollars in recent years, the actual protection to employees has declined—whether measured as a percent of lost wages or in comparison with living costs. Benefits are most often set by the maximum provisions. The maximums are adjusted only after they have become demonstrably obsolete. B y the time adjustments are made, wages and living costs have usually risen to new levels and the relative protection continues to decline. N o amount of equivocation as to whether inflation is here to stay, no amount of argument to keep the maximums as they are because in the future they may become less oppressive, can overcome the plain fact that the injured man— the most vulnerable party to the situation—is not being adequately compensated. In numerous instances the benefits have failed to match current public assistance budgets. Unemployment insurance has followed a similar course. As a newer extension of workers' security, it aspired to a less ambitious goal—to restore for a temporary period only 50 per cent of lost wages—but in performance it has fallen below even this modest aspiration. Old-age insurance is not set with any stated relation to need, but conceived as a "floor of protection." However much w e may wish it to be otherwise, most retired people do not have enough personal resources which can be placed above the "floor" to assure a level of subsistence during their remaining years. The benefit formula remained unchanged from its original enactment until 1950 although consumer prices had increased by about three fourths. Even old age assistance payments had been increased on a nationwide average from $19 to $44 monthly, while the average old-age insurance benefit was only $26. In all, there have been only three increases in benefits. Monthly benefits now average $63 and the maximum is $108.50. Relatively, this represents a tremendous gain, but the benefits still do not approximate any known living standard for the retired. More than million people are still on old age assistance. In a period of prosperity, hopes have run high, and not enough attention has been paid to what is really the floor of protection. The demise of charity has been heralded too soon. W e may wish to see public assistance made unnecessary, but until very recently it has remained the chief agency of amelioration. Not before 1951, did insurance, mainly in its public form, begin to outweigh assistance as a source of retirement income. So long as assistance continues to be needed, it must not only be preserved, but substantially strengthened to sustain those who are unprotected or insufficiently protected by insurance. When social insurance, added to the resources normally possessed by beneficiaries, does not make a close enough approach to adequacy, it becomes an inferior form of public assistance with a presumptive means test. Assistance programs at least apply

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a needs criterion in setting payments. If the social insurance benefits do not exceed assistance budgets, too high a price may be paid for eliminating the means test. One of the most telling attacks against workmen's compensation comes from those w h o advocate a return to negligence suits and point with some justification to the greater gains that have been made without it under employers' liability legislation. Proposals have also been advanced for abolishing the means test under blanket programs promising flat benefits for all to be financed through general taxation, such as under theTownsend Plan, "Ham and Eggs," and other politically, rather than insurance-oriented solutions. Labor has not favoured a return to negligence suits or the "Ham and Eggs" approach but has preferred to stay with and perfect insurance plans. The only way in which it could preserve an insurance approach and have adequate protection was to turn to collective bargaining. If the defeat of assistance was too soon proclaimed, the victory of social insurance was too readily assumed.

VOLUNTARY PRIVATE SOCIAL INSURANCE

Within the last decade, American labor began to negotiate with employers to supplement existing programs and to fill in the gaps where no protection exists. This was only after efforts to raise the standards of social insurance and to enact disability and health insurance had proved unavailing. It was not a rejection o f social insurance which continued to be preferred and supported. Some unions, in fact, deliberately designed their collective bargaining strategy to give employers a financial incentive to support improved social insurance. Labor unions began to bargain with employers for health, temporary disability, and life insurance and, in an especially prominent wave, for old age and disability pensions. W h a t has emerged is a private social insurance system: private in that it uses insurance companies, voluntary health plans, other non-governmental carriers or self-insurance: social in the coverages with which it deals, in using groups rather than individuals as its base, in being financed by employer and/or employee contributions and in the way in which it redistributes these contributions. Although its benefits have been conceived less as a matter of the employer's responsibility toward certain employee needs, and more as an allocation o f wages to meet those needs, the result has been a contractual, if not a statutory, liability o f employers to much the same purpose. It has been a remarkably vigorous development. Employer contributions to private pension and welfare plans have increased more rapidly, and n o w exceed, contributions to social insurance. In many instances income replacement benefits have attained impressive heights.

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In typical basic industry, long-service wage workers can now expect to receive an income from social security and negotiated pension plans of about $170 monthly— $225 for elderly couples. In other words, the combined benefits they receive at last make attainable a minimum standard of living. In one of the major automobile companies, benefits for temporary disability average $55 weekly— almost $20 more than prevailing benefits under workmen's compensation—and the maximum is $85 a week. The latest addition to the private social insurance system demonstrates how very persistent is the desire for security against unemployment. Even after fifteen years of essentially full employment, collective bargaining arose for plans to supplement unemployment insurance and to induce employers to stabilize employment. Unions were determined to strike if need be for such plans, and have succeeded, without striking, in negotiating for a total of 60 to 65 per cent of take-home pay. The flowering of voluntary insurance has been startling, especially to those who have assumed an inevitable progression toward public insurance. It now appears that private insurance—especially in its supplementary forms—may be not merely a forerunner of social insurance as has happened in many countries, but also a late development predicated on a maturing economy and rising standards of human welfare. The voluntary setting aside of substantial sums for anticipated misfortune is most likely to be accepted by people who are already steeped in adversity and who have the means to divert funds from their everyday living expenses. Private insurance offers great flexibility and the possibility of very high benefit levels through supplementation. With individual insurance and personal savings better protected against depletion, when premiums can be maintained out of disability and unemployment insurance, and with more realistic total levels attainable, they too may develop more fully than ever. Private social insurance is bringing increased and timely protection to many millions. Labor is more sympathetic and receptive to the institution of private insurance than ever before. But it is concerned with déficiences that are far from superficial. In all forms, the private protection is far too closely tied to active employment, with inadequate provision for extension and preservation of rights where employment is interrupted or severed. There are great gaps in population coverage. Despite the tremendous attention paid to old-age security, private pension coverage has reached only 13 million employees, compared with about 57-58 million under the Federal social security program. Some of the other coverages have probably spread more than might have been expected. Nevertheless, labor cannot lightly dismiss the fact that more than one third of the population—two thirds of the aged—remain without any health insurance and that well over one third of the work force have no protection whatsoever against temporary disability.

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Administrative costs have not yet been brought in harmony with the social nature of the coverage. They have tended to be reduced for large groups but remain excessive in small establishments. It is significant that for two thirds of the employees covered under private pension plans, labor and management found it desirable to turn to self-insurance mainly for greater economy. Both the spread of enrollment and adoption of more adequate benefits are being blocked by failure to reduce the costs to small groups through broader risk pooling and administrative economies. Vital forms of protection have been relegated as a side issue in collective bargaining and elsewhere—"fringe benefits" as they are called. Even the insurers themselves appear to regard group as an inferior form of insurance. In the proliferation of thousands of separate arrangements involving carriers, employers, unions, consultants, agents and brokers, responsibilities were often thrust on inexperienced and inadequately supervised people. Instances of corruption have come to light. Even if their volume should under the circumstances prove to be small, there is no excuse for any corruption in a field as important as human welfare, whether by a union or management official or anyone else. At the same time a substantial share of institutional responsibility rests with the failure of insurers to police the activity of agents when sizable amounts of money available as commissions have contributed to corruption. Labor wonders whether these gaps in coverage, these weaknesses in programing and administration, whether the selective attention for those in favorable circumstances to the neglect of the "poor" risks, are necessary penalties of approaching insurance the voluntary way. AREAS OF NEED

The forms of protection that need greatest attention by private and public insurance are disability insurance, provision for long-term unemployment, and health insurance. Labor does not accept the interpretation that there is an inherent weakness in people which invalidates disability insurance. The central focus of medicine is changing from staving off the hit-and-run death to the conquest of disability. Medicine is now attempting to deal with chronic, long-term disabilities—that whole area that lies mainly between disability retirement and temporary disability. This necessitates a properly designed system of disability insurance that has scarcely been attempted. In such a program, temporary benefits would maintain as high a standard of living as feasible for people merely interrupted in their work, whose needs remain substantially unchanged. Full use would be made of concurrent health insurance. From the inception of disability, rehabilitation needs would be identified and

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referrals made. While there is a reasonable expectation that a severely disabled individual will be successfully rehabilitated and while certification is received from a qualified agency that he is indeed being rehabilitated, temporary disability benefits would be extended if necessary for intervals beyond the usual six-month limit. B y keeping the employee thinking of himself as temporarily rather than permanently disabled, and by awarding a higher level of income than on retirement from the labor force, the employee would be subjected to positive incentives supporting rehabilitation. Only where rehabilitation fails would it be necessary to resort to retirement. Under these circumstances, rehabilitation will have been in the picture from the beginning ; it will have been used to evaluate the disability as well as to overcome it ; and it will serve to make long-term disability insurance more feasible. The additional cost of such a program, moreover, would be no more than is now spent on one of the frills of group insurance. In a time of rapid technological change, when dislocations are likely to occur, more attention needs to be paid to long-term unemployment. It is not merely a. matter of extending duration, but, rather, requires an examination into cause with, such ancillary services, where needed, as retraining, relocation, and rehabilitation. Health insurance has been fragmentary in extent and unsatisfactory in form. The development most vigorously sponsored by private insurance today amounts to an acknowledgment that health insurance has gotten off to a wrong start. It is agreed on all sides that a great expansion in the scope of protection is needed, but there is no accord and much uncertainty as to how this can be accomplished. The greatest weakness in the approach taken by private insurers to health insurance has been in attempting to deal with this contingency as if it involved merely the replacement of financial losses. This has been defended on the grounds that private insurance should not intrude itself into medical matters. However, the mere existence of insurance inescapably influences practice, and, with the tradition of setting prices according to ability to pay, it may also influence its cost to the detriment of the insured. This, incidentally, is a new moral hazard that does not involve the policyholder. Here is the need for practical planning and for a health serving orientation that is thus far hardly in evidence. The need for new concepts is perhaps best illustrated by health insurance. The fact that hospital associations, medical societies, consumer and labor groups have all found it necessary to establish their own insurance plans and have rejected even the name of insurance in favor of prepayment reveals the deep need for reexamining concepts. While insurers may understandably prefer to deal with risks that are large, fortuitous, and out of control of the insured, they are going to have to reappraise whether these conditions are actually essential for a risk to be susceptible to insurance. Principles of insurance are too important to be confused with mere preferences. Those who advocate a return to what is called basic insurance principles are

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in effect urging that insurance be less, rather than more, adaptable to the changing and challenging circumstances that lie ahead. Even the small claim might be regarded more humanely. A cost that may appear trifling to upper and middle income people may loom large to the worker. Labor has not rejected reasonable waiting periods in income insurance. But where the ability to pay for and secure services vital to health is involved, it may be improper to play with economic pressures which inhibit access to care— especially when so very little is known about how these pressures actually operate. The fortuitous element has received far too much attention in the development of insurance. Accidents may be more readily verified than sicknesses, but it is unnecessary and perhaps improper to afford them a higher level of protection. Generally speaking, there has been an over-emphasis on accidents, and far too great a priority given to death benefits, rather than to those forms of protection which sustain and improve life. The availability of data as a prerequisite to insurance has been overemphasized. Many coverages have been unnecessarily retarded or blocked for lack of data that could readily be acquired with only modest experimentation. Insurance must assume greater responsibility for obtaining data on which to build the new essential coverages. Granted that the decision to set benefits is made by parties outside of insurance, there is much that can be done to make them conform more fully to need. Inflationary trends make it imperative to find ways for private insurance to be made more responsive to living costs. There are many instances in which fixed limits that could be eliminated at negligible cost give the insurer an extra margin of safety that it really does not need, but expose the insured to an extra hazard that he cannot afford. The willingness of consumers to proceed much further with group life insurance may depend in substantial part on the readiness of the industry to make lump sum payments the exception rather than the rule and to develop a new approach to survivor annuities. In the long run, the consumer interest will probably not permit insurance to consider its responsibility discharged when it has paid an agreed-upon number of dollars without determining how adequately those dollars have met need and without serving those related functions which only it can perform. If private insurance in workmen's compensation, admittedly under the prod of legislation, can provide for a complete range of services including prevention, medical care, indemnification and, in some instances, rehabilitation, it can do so in other fields. If disability insurance provides the best available means for determining the causes of disability and identifying the needs for rehabilitation of a majority of the work force, this resource can not be ignored. The market place has not been a reliable test of consumer need. People have to buy what is available, instead of what should be available. Coverages of demon-

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strably little merit have achieved sales success, especially where insufficient funds exist for adequate protection and ways are sought to make fragmentary coverage look impressive. As the reliance on insurance grows, the need for higher standards o f programming and greater consumer participation in planning will increase.

LABOR AND ECONOMIC SECURITY

Almost every expansion o f economic security has been met with sweeping accusations that such programs would undermine thrift, destroy individual responsibility and initiative, and ultimately—sometimes the w o r d used is inevitably — b r i n g about the downfall o f our country. As social science has made practically no efforts to verify or disprove such assertions, they are often made with the k n o w ledge that nothing usually is said to contradict them. It is n o w possible to examine a long series o f such statements historically and to make more informed judgments as to whether the programs that have been adopted have harmed or contributed toward initiative. There is every evidence that they have helped rather than harmed the country. A s for thrift and initiative, Winston Churchill posed the issue with characteristic eloquence back in 1911 when he said: 1 I do not agree with those who say that every man must look after himself, and that intervention . . . will be fatal to his self-reliance, his foresight, and his thrift. . . . If terror be an incentive to thrift, surely the penalties of the system which we have abandoned ought to have stimulated thrift as much as anything could have been stimulated in this world. The mass of the labouring people have known that unless they made provisions for their old age betimes they would perish miserably in the workhouse. Yet they have made no provision . . . for they have never been able to make such a provision. . . . It is a great mistake to suppose that thrift is caused only by fear; it springs from hope as well as fear; where there is no hope, be sure there will be no thrift. Those w h o believe that labor wants something for nothing seriously underestimate its concern for economic security. Labor wants economic benefits enough to have accepted their financial implications. It has opposed postponement o f scheduled increases in social security taxes to protect the long-run financing o f the program. In asking for liberalizations, it has consistently supported corresponding tax raises. W o r k i n g people have been remarkably willing to contribute and to forego w a g e increases to get employers to contribute to negotiated plans.

THE FUTURE

N o t only the expectation o f life but the entire status o f people is being advanced further in current decades than in preceding centuries. There is an upgrading o f I I am indebted to Professor Edwin E. Witte for this quotation which appears in a paper entitled "Security and Economic Change."

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people in their standards of living and in their levels of expectation. Insurance is today dealing with a different individual from the one around whom its early practices and theories were built. Today's policyholder is willing to provide for himself to the extent possible, but he accepts as inevitable the need for group action and is not only ready to support it but demands it. He requires political freedom and will not stand for economic neglect. The search for alternatives is essential to life. It is the way purpose triumphs over circumstance. In the quest for economic security, labor has tried the do-it-yourself method, has turned to government, both at the national and local levels, invoking the legislative, administrative, and judicial processes, and, more recently, to direct negotiations with employers for private social insurance. Labor will continue to look for a higher level of security, and for a more equitable distribution of social costs. It will continue to evaluate existing programs, and look for better ways. Public and private insurance are complementary rather than irreconcilable forms of protection. Undoubtedly, there will continue to be oscillations of favor between the two approaches. Each must be cultivated for what it can better contribute. In an expanding economy, both are likely to grow. It is spurious to equate one form with freedom and the other with oppression, any more than one can be tied to altruism, the other to greed. The differences are much more prosaic. The trend of social insurance has been horizontal ; its deficiencies are largely in level of protection. The tendency of private insurance has been prevailingly vertical ; its major deficiency is narrowness of base. Progress is needed in spread of coverage, in level of protection and in the development of forms better attuned to the needs of the great majority of people. How far private insurance is likely to go in providing the social forms of protection and how far public insurance is likely to go in achieving greater adequacy and flexibility are in question. Progress toward these goals is certain.

Management's View of Insurance by C. Henry A u s t i n *

The word "management" has extremely wide application. It includes management of firms engaged in mining, manufacturing, merchandising, publishing, banking, transportation, utilities, and even insurance itself. It includes the entire range of industry from the single plant manufacturer of specialty items to integrated industrial giants. If my paper were restricted only to universal views of this group regarding insurance, it would consist of nothing more than a few barren truisms. Instead I propose to set forth a view of the insurance industry which I believe is representative ofthat portion of management which is concerned with and responsible for the elimination, reduction or transfer of risks. I am certain, however, that anyone wishing to do so should have no difficulty in finding among management other views which differ. And what is true of all general statements is also true here. A diligent investigator can find individual variances which do not fall within the population I have sampled. MANAGEMENT APPROACHES TO INSURANCE

The variety of methods employed by management in dealing with insurance matters is almost as wide as the variety of industries. When all of these methods are examined, however, they are found to fall into four general classes. First, there are some firms, usually wholly owned in which the president and/or owner lets his broker handle all the details of his insurance requirements. There are several reasons why he may do this—he either hasn't the time to devote to insurance or underestimates the importance of it; he does not understand it; he reposes the fullest confidence in the integrity and ability of the broker; or he wants to see his daughter's husband succeed as an agent or broker. In the second general class are firms in which the responsibility for insurance is assigned, more or less, to the treasurer, secretary, or some other officer. Within this group there is great variation in the degree of responsibility so assigned, and the degree of competence with which it is discharged. The third group consists of those organizations which employ a full-time insurance manager or, to use a more recent term, a risk manager. He has a secretary and, * Manager, Insurance Department, Standard Oil Company, Indiana. 355

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in some instances, an assistant. Again, there is a wide variation in the extent and degree of responsibility resting with this individual. In general, however, his responsibilities are considerably greater than those of the part-time managers of the second group. Also, because his responsibilities are restricted to matters o f insurance, he is generally more competent and better qualified in the field of insurance than members of the second group. The number o f companies employing risk managers devoting full time to the insurance functions is growing steadily, reflecting management's growing realization of the importance of this function. The fourth, and last, group is composed of those larger companies which have an insurance department headed by a risk manager and staffed with specialists in various areas o f insurance. All responsibility for the insurance program rests with the risk manager. His position in the organization is usually such that he answers directly to either the Financial Vice President, the President or other executive officer. This group of companies is the smallest of the four, numerically, both because the concept o f a risk manager w h o functions through an integrated insurance department is relatively new, and because such a department is economically justified only in a large company. There are differences within the group, but I would like to describe one department that has been referred to by the American Association of University Teachers of Insurance as " T h e Integrated Insurance Department." AN INTEGRATED INSURANCE DEPARTMENT

This department is headed by a risk manager and is staffed with a life actuary, casualty underwriter, casualty actuary, fire engineer, and group insurance analyst. The department head is responsible for all matters pertaining to insurance. The department conducts studies in employee mortality and rates of early retirement, termination, or withdrawal for the purpose of making actuarial evaluations o f the company's liabilities under insured or trusteed group pension, group life, and other employee benefit plans ; it analyzes casualty loss experience and frequency dispersion ; and it conducts a continuing study of premium structures and retrospective rating plans in order to compare the merits of insurance versus assumption of fire and casualty risks. M y familiarity with the operation of this particular department arises from the fact that it is the insurance department o f Standard Oil Company (Indiana).

RISK MANAGEMENT AND RISK MANAGER

There is a continuing upward shift of companies from one of these group to the next as their operations, and consequently their insurance problems, extend in

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scope and grow in complexity. An even more important factor in the development of risk management as a major stafffunction is the increasing realization by management that risk management has a distinct effect on the company's profit and loss statement. As a result the corporate consumer is coming to view the products of the insurance industry more and more through the eyes of the risk manager. While my experience has been gained in a large corporation, I have also enjoyed association with a large number of my counterparts in companies of all sizes through insurance conferences and seminars of the American Management Association. Membership in the American Society of Insurance Management has also provided me many opportunities to exchange views with others in risk management. Through activity in the Casualty Insurance Law Committee of the American Bar Association, I have discussed some of the problems of insurance law faced by insureds. My associate membership in the American Association of University Teachers of Insurance has permitted me to gain some idea of the extent of activity in the area of education for risk management. I have recited these activities because they have provided the foundation for today's observations. Insurance can be viewed in two frames of reference : theoretically as an institution or, practically, as a business. From the institutional standpoint, I can state without qualification that management thinks insurance is a necessary and constructive factor in our economy, but when its practical application is considered we begin to find some variation in opinions. What forms the basis of these opinions ? What are some of the elements which shape and influence these views ? SOURCES OF MANAGEMENT'S VIEWS

In many cases, particularly among smaller fims, management's view of the insurance industry is gained almost entirely from contacts with the broker or agent. The insurance industry is no different than other industries in this regard, except that the customer-salesman relationship is even more important to insurance than it is to most other businesses. Today, everyone who has something to sell recognizes the importance of marketing—advertising, the ultra-modern display, the helpful salesman, the motivationtested package. Ultimately, however, the customer's opinion of the product is going to depend largely on the product itself—whether or not it runs dependably, tastes good, wears well, or delivers better mileage, as the case may be. This is where insurance differs, for often the product is never called upon to perform its primary purpose. From another viewpoint, the agent's service itself constitutes an important part

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of the product. A poor reaction is developed on the part of the consumer who finds himself underinsured, or worse, when a loss occurs. Consider also the poor opinion of the insurance industry which results when a business acquaintance or another insurance agent shows the customer how economies could have been effected in his insurance program. Other personal contacts are important—the claim adjuster, the safety engineer, even the payroll auditor—but it is primarily on its sales force that the insurance industry must continue to rely in its relations with management. The trade publications, while primarily designed for use within the industry, are also widely read by risk management. I suggest that the industry and the insurance buyer would be better served if these publications devoted more space to articles explaining and justifying the industry's position and perhaps less space to articles on selling, ownership of renewals or " H o w I Reached the Magic Million Mark." For example, management is aware of the insurance industry's stand on compulsory automobile insurance but has only a vague notion of the reasons behind its stand. The insurance industry could utilize trade publications to set forth and defend the principles involved repeatedly, vigorously, and in detail. As I previously stated, there is probably no facet of the insurance business on which a universal view is held by all members of the management group ; however, there is an opinion shared by an appreciable number of risk managers that the insurance industry is loath to deviate from its time-honored practices and customs. The accusation is frequendy made that the industry broadens old coverages and develops new coverages only for the mass market. This opinion is due in part to the fact that innovations with mass market appeal are the ones given most publicity —for example, the family automobile policy, the home-owners' policy, and major medical insurance. This constant improvement of policy forms designed for the mass market is ascribed by some to an awareness and recognition of the needs of the buyer, by others to the cold hard facts of competition. This single policy approach, however, is not the solution to the problems of the corporate buyer of insurance. The informed corporate risk manager knows the needs of his company, and he also knows that no set of "standard" policy forms can fit these needs thoroughly and economically. Considerable attention has been focused on multiple peril policies, umbrella coverage, immediate participation guaranteed contracts, parasol coverage, and similar "motivation tested" phrases. As a result of the general use and injudicious interpretation of such comforting phrases some buyers may have been lured into a feeling of false security. Some of us may have forgotten some of the painful lessons we learned in connection with our inland marine policies—that "all risk" really means "all risk—except." In purchasing certain multiple peril policies we may well be doing our companies

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a disservice, particularly if the premium includes a loading for perils to which w e are not exposed or perils which can be included only at a "dollar trading" disadvantage to the buyer. If the buyers are doing their companies a disservice it will ultimately prove that the insurance industry has done itself a disservice by encouraging the indiscriminate purchase of these policies. The modern risk manager with the assistance of his own casualty actuary, underwriter, and fire engineer can isolate and analyze his company's risks, establish insurable values, and determine the type and amount of coverage required. He is also equipped to determine what this coverage should cost and the comparative costs of full coverage insurance, deductible or excess of loss protection, or full assumption of risk by the corporation. When he has completed his studies he approaches the insurance industry with specific coverage in mind. It is discouraging, to say the least, to be told that what he should buy is the policy form the insurance industry has in its well-worn pigeonholes, with such slight amendments as may be permitted by the existing manuals of typewritten or printed endorsement forms. O f course, if the first policy is not complete the agent can suggest a second policy to cover the loopholes in the first, as suggested by a recent cartoon in the Wall Street

Journal. EMPLOYEE GROUP BENEFIT PLANS

In the field of employee group benefit plans management is many times puzzled by the apparently ultra-conservative attitude of the insurance companies with respect to rate structures and the payment of dividends. Management hears with pleasure and applauds the welcome news of each mortality gain, but is puzzled when the insurance company actuaries apparendy seize upon such news as the basis to announce a rate increase. Management also wonders at times about the dividend deferment policy o f many insurance companies, and gains the impression that the carriers are determined to be more than adequately bulwarked against any conceivable decreased investment return, mortality improvement, and increased administrative expense by the establishment of rapidly mounting reserves and very pessimistic reserve goals. Just as management finds it difficult to understand and sympathize with some of the rating procedures used by life insurance companies, so too does management find it difficult to understand the rating approach used by many casualty, fire, and inland marine underwriters. Certainly a broad spread of experience is necessary to develop adequate and reasonable rates, and of course Public Law 15 imposes certain responsibilities on the insurance industry. But the law was intended to encourage constructive competition not restrict it. Too often the insurance industry gives the informed buyer the

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impression that it is using the "nondiscriminatory" portion of this law and subsequent state legislation to avoid improvements in coverage or rating procedures— improvements which the informed buyer knows are essential to the proper solution of his company's problems. Instead of attempting to compete within the framework of existing legislation, certain groups of companies, through rating associations, give the appearance of presenting a united front to resist change. It is my belief that the insurance industry may well discover that Public Law 15, or bureau rules justified on the basis of Public Law 15, will not in our expanding economy always afford this protection. State insurance commissioners are well aware of their powers under Public Law 15, and they are equally well aware of what the results will be if this moratorium on Federal control is lifted. I have often heard the accusation made that the insurance companies will not furnish a "realistic" premium quotation. This can be the result of several factors, ranging from a failure of the buyer to subject his o w n exposures to a realistic appraisal, to the occasional instance where a high quotation may be used to turn down a piece of business the underwriter does not want. The first extreme calls for more and better buyer education. If the buyer's appraisal of his risk is unrealistic do not hesitate to tell him so, and tell him why. In the other case, if the risk does not properly fit the particular insurance company's underwriting philosophy, or if for some other reason the insurance company does not wish to accept the risk, the insurance company should make a frank declination. Consider what happens when an "unrealistic" quotation is compared with a competitor's "realistic" quotation. The company which furnished the unrealistic quotation will in all probability be foreclosed from future consideration by the insured. O n the other hand I occasionally hear of a case where the insurance coverage has been written on the basis of an unduly optimistic quotation. Such a quotation apparendy is based on an unduly optimistic underwriting attitude or in the hope that future rate increases can be used to make up any first year deficit. This rating approach will, in the long run, result in a highly unfavorable opinion of the insurance industry, particularly in view o f the tendency on the part o f consumers to regard the action of one insurance company as representative of the entire industry. I sometimes hear complaints that insurance companies' claim practices are open to criticism. In some instances, companies are criticized for being too generous in their setdements. Either to "get the open items off the books" or because they fear the results of current jury attitudes, they contribute, however unwillingly, to constandy mounting premium costs. Other complaints are voiced that insurance companies are alienating the insured's customers by a tight claim policy.

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Every insurance company that I know about sets forth a policy of fair and prompt treatment of claimants. I trust that this policy contemplates a prompt, fair offer to settle if liability exists, or a polite denial if there is no liability. W e certainly cannot condone intentional failure to reply to claimants. If the insured expresses any concern about the public relations aspects of thirdparty claims, the insurance company should send a copy of each denial letter to the insured. If the insured then desires to make a settlement with the claimant for "business reasons" he can do so without paying a loss conversion factor and tax multiplier penalty to the insurance company. The opinion is sometimes ventured that underwriters do not attempt to consider each risk on its individual merits, but are inclined to assign risks to arbitrary classifications. The acceptance or declination of a particular risk would then depend not on the facts of the individual risk but upon how well it fits an existing class, as well as the underwriter's opinion of that class. While a clerk, the insurance trainee hears that a certain exposure class is hazardous. W h e n the trainee becomes a junior underwriter he may carry on in this belief. B y the time he becomes an underwriter the original hearsay may have progressed through belief to conviction. This hypothetical career recalls a quotation from Stebbins, "Few o f us think. W e merely rearrange our prejudices." There are statements to the effect that the mark-up in the insurance premium is too high. I can anticipate your reply that this argument is too often based on the erroneous assumption that the difference between losses and premiums represents "mark-up." O f course this is incorrect—it is comparable to estimating a manufacturer's mark-up on the basis of the cost o f raw materials only, and ignoring labor and overhead costs. O n the other hand, the insurance press has reported the blossoming out of recent increases in fire insurance commissions despite increasing loss ratios. Corporate risk managers do not want their risks to be acquired by the use of increased acquisition costs, and this refers to "entertainment" as well as commissions. "DOLLAR TRADERS"

A final criticism is inherent in the opinion that American insurance companies are not risk organizations but dollar traders. This opinion requires a re-examination o f the fundamental definitions of insurance. One definition assumes the transfer o f risk to a professional risk bearer. Another definition assumes the apportionment o f risk among a number of individuals subject to the same risk. T o the extent that insurance companies decline to underwrite a risk because it is not a member of a "homogeneous" class, a risk which cannot be apportioned among similarly exposed parties, the industry encourages the opinion that it is merely "trading dollars." In this area o f criticism w e are forced to consider the complaint that deductibles

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and excess of loss contracts are used only for the advantage of the insurance company. It is the belief of many corporate insurance buyers that deductibles are only available where the full coverage rate would be so high that a sizable portion of the consumer market would be eliminated. It is also presumed that the companies are fearful that a more general use of deductibles would result in lower premium volume, and this in turn would result in agency problems since lower premiums would mean lower commissions. All of this results in the conclusion that for the most part the American insurance market offers deductibles only for its own convenience, and when the use of a deductible primarily benefits the policyholder coverage must be sought from a very limited American market or the foreign market. In this regard corporate risk managers generally feel that the insurance industry presents them with Hobson's choice: they must accept what the insurance industry has on the shelf, or assume their own risks. It is conceivable that a risk manager who has been confronted with many or all of these problems, who is familiar with the organization of corporations, and who has a working knowledge of applicable state and Federal insurance statutes, would be in a position to interest his company and others in the formation of an insurance company. This company could make available coverages which at present are either unavailable or available only at an economic disadvantage. The American insurance industry should not make it necessary for the consumer to take such a step. The insurance industry should keep in mind that the successful completion of the insurance transaction depends upon three parties—the consumer, the agent, or broker as the distributor and the insurance company as the supplier. Until the needs of all three parties are adequately met, there will be either unsatisfactory transactions or no transactions. Success in a competitive economy is based in large part on the supplier's ability to satisfy the needs of the consumer. This requires that the supplier be aware of the consumer's needs, and use imagination and initiative in helping the consumer solve his problems. In order to match the rapid forward stride of modern American industry the insurance industry must free itself of its long-held prejudices against change in established rating and underwriting practices. It must give consideration to the particular needs of the buyer whose premiums support the industry. I share the belief with many others that a private insurance industry which is truly risk-bearing, imaginative, competitive, and profitable is essential to our economy. When the insurance industry properly interprets and satisfactorily meets the requirements of the business community, it discharges its function properly, and both the business community and the insurance industry prosper.

PART IX Insurance Environment in Selected Countries

Argentina by Carlos L. G r a n d j e a n *

ECONOMIC ENVIRONMENT

In the past ten years not only has the Argentine economy not experienced the progressive growth to be expected in a young country, potentially rich in natural resources (soil, livestock, and agriculture) and anxious to absorb within its boundaries industrial plants of every order but it has regressed in the use and systematic exploitation of these resources. However, it is very possible and definitely to be hoped that from this period of episodic stagnation, judicious appraisals shall arise to warrant, with new approaches and sound principles, the righting of the country's economy along the paths of appeasement of the civic conscience, so heavily incited by the demagogy of the overthrown political regime. This task behooves the responsible sectors of the nation and will not prove too difficult to accomplish if it can be understood by all what recuperation must mean in terms of future prosperity. In 1954 the gross yield per inhabitant barely exceeded by 3.5 per cent the figure for 1946 and, with slight variations, as much can be said for the following years. Upon conclusion of World War II, Argentina held considerable reserves accumulated as a result of the inevitable decrease which the conflagration brought about in her trade balance (imports and exports). This circumstance permitted the setting up of credit balances despite the deterioration in the relation of prices in trade (a fictitious situation). On the other hand, the scant imports during the war years gave rise to a marked local decapitalization; although later on a good portion of the reserves set up was allotted to repatriation of the external debt and to nationalizing foreign investments in public services (railways, for example). Industry received extraordinary stimulus during the postwar period. Even during the war years the reduction of imports stimulated an increase in industrial output, to relieve the scarcity resulting from the different restrictions, and strengthened experience in the field, which was later to be exploited under an openly protective regime and favored by considerable imports of capital goods. Furthermore, the displacement of labor from the agricultural field together * President, Compania de Seguros, La Franco Argentina, Buenos Aires.

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•with the increase in income also favored industrial expansion. Thus the internal demand for manufactured products was stepped up. Both agriculture and livestock are at a standstill which dates at least ten years back—above all in the former—and which is aggravated by the fact that internal consumption has increased due to the causes above mentioned and to the growth of the population; all of which has made for a cut in balances available for export. Industry presents a similar situation in the last five-year period. The Argentine economy (as occurs, in general, with all countries at a similar stage of development) has not yet experienced the structural changes which allow for the upkeep of industrialization without substantial supplies from abroad. Amongst these supplies, possibly heading them, are capital goods, raw materials, and fuel. The absence of a heavy industry is noted, as also the lack of accessible sources of regular and sufficient supply of fuel and raw material for the different industries. Apart from whatever schemes may be evolved to implement the recuperation of the country, foreign capital investments, whether in a final capacity or by way of loans are, without a doubt, of particular importance towards redressing our local economy, the productive potentialities of which—we repeat—are far and beyond what is actually achieved. The value of these investments has been assessed conservatively at around 2,000 m i l l i o n U.S. dollars. The official rate of exchange in force at the time this report is drawn up is 1,800 Argentine paper pesos to 100 U.S. dollars, apart from which a free market is authorized on which the Argentine paper peso oscillated from 2,500 to 3,850 Argentine paper pesos per 100 U.S. dollars, and even, at given times, attained the 4,400 Argentine paper peso figure per 100 U.S. dollars. The nature of the Argentine economy is statistically illustrated in the following tables.

367

Argentina TABLE I

Gross National Income (in millions of Argentina paper pesos, at 1950 prices) Year

Amount

1945

48,028

1946

54,106

1947

62,654

1948

65,890

1949

62,757

1950

62,249

1951

64,046

1952

59.715

1953

62,971

1954

65,914

Table 2

Distribution of National Income Amongst the Economic Groups (in percentages)

Year

Agricul-

Live-

ture

stock

Fishing

Mining

Manufacturing

Build-

Industries

ing

Services T o tal in general

V 1945

9-3

10.8

0.2

1.2

22.8

5-8

49-9

I O O

1946

9-4

9-9

0.2

1.0

23.6

5-7

50.2

100

1947

9.8

8-9

O.I

1.0

24.5

5-2

50.5

I O O

1948

9-5

8.2

0.2

0.9

23.5

6-4

51.3

I O O

1949

8-3

8-3

0.2

1.0

23.0

7-2

52.0

I O O

1950

7-5

8.0

0.2

1.0

23.4

7-3

52.6

I O O

I95I

8.5

1.0

23.2

7.0

52.7

I O O

7.0

7-4 8.1

0.2

1952

0.2

I.I

23.1

6.4

541

I O O

1953

10.3

8.1

0.2

1.0

21.4

5.8

9-4

7.8

0.2

I.I

22.1

6.2

53,2 53-2

I O O

1954

I O O

100.0 100.0 100.0 100,0 100.0

IOO.O 100.0 100.0 ioo.o 100.0

Gross National Income (3)

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1

Μθ\000>-1 — t « »-Η r-î »—ι I I I

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Private

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Year

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Government Consumption

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Total

Net Investment abroad

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Personal

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Argentina

369

T h e number of insurance concerns operating in 1955 was as follows: 109 31 ι 43

national joint stock companies cooperative and mutual societies state concern foreign offices

T h e generic branches authorized by the S S N (National Superintendency of Imsurance) are: Employer's Liability Transport Life Automotives Fire Loss of profits and specified overhead expenses (fire, riot, explosion, earthquake, etc.) Personal accidents and specified sickness Aviation Public liability Robbery and Theft Rural worker's statute (medical and pharmaceutical assistance apart from payment of 50 per cent of wages in case of illness) Plate glass Hail Livestock Fidelity Accidents to passengers Miscellaneous risks (contingency covers) T h e premiums collected in 1955 were as follows: Life Fire Marine Automobiles Employer's Liability Plate glass Hail Livestock Public Liability Robbery and Theft Personal Accidents Fidelity Accidents to passengers Aviation Miscellaneous

$379.425,927·ΐ2 $591.719.850.98 $199.174.138-16 $396,182,070.61 $470,696,349.27 $6,428,864.20 $43.355.541-94

$19,847,142.02 $4,362,579.11 $11,244,017.33 $20,860,371.60 $1,890,492.64 $3,025,742.14 $13,540,043-53 $15,190,996.11

370

The

World Insurance Trends

assets o f the insurance companies at that same date amounted

to

$2,301,426,500 in the aggregate, distributed as follows: Cash on Hand and in Banks Public Securities Mortgage Loans Real Estate Loans on Life Policies Miscellaneous investments

$310,759,900 ( 1 3 . 5 % ) 5882,636,700 (38.4%) $549,597,400 ( 2 3 . 9 % ) $286,889,000 ( 1 2 . 6 % ) $116,635,200 ( 5 . 0 % )

$154,908,300 ( 6.7%)

T h e sums insured under life policies, at the close o f 1955, amounted to 7,737.3 million pesos (6,644.3 under individual policies and 1,093.0 under group policies). As at the same date the aggregate o f bank deposits in saving funds was 15,844.3 million pesos, to wit, 5,478.2 with the Banco de la Nación Argentina, 6,707.2 with other banking concerns, and 3,658.9 with the National Postal Saving Fund. Health insurance, such as it is understood under the classical schemes (cash payments for medical expenses, clinical, pharmaceutical and, at times, burial expenses) is not practiced in Argentina. Social Security absorbs this type o f cover. There are certain hospital foundations, such as the Spanish Hospital, the Italian Hospital, the French Hospital, etc., created by the pertinent immigration groups, which afford their members this kind o f assistance in return for a small monthly contribution and, according to the case, an initial or, entrance fee (mutual system). Life insurance with the "privilege" or addition o f surgical operations has met with great acceptance from the public. T h e labor laws are tending, ever more strongly, to extend the juridical conception o f the occupational accident to include pathological ailments which heretofore have been construed as mere illnesses not subject to compensation. T h e public attitudes towards life insurance, property insurance, and accident insurance can be inferred from the figures given above for premiums collected. T h e surplus cover for 1955 was 451.7 million pesos, while profits amounted to 1.7 million pesos in the life branch, 49.9 in contingencies, 54.2 from investments, amd 7.7 from management account.

POLITICAL ENVIRONMENT

Despite several attempts, an Organic Insurance L a w has not yet been enacted in Argentina. The rules that apply on the subject are drawn from : (a) T h e Constitution (as a basic guide). (b) T h e Civil, Commercial, and Aviation Codes. (c) T h e basic laws creating the S S N (National Superintendency o f Insurance) and I N D E R (National Reinsurance Institute). (d) T h e pertinent Decrees from the Public Powers.

Argentina

371

(e) The laws enacted by the states (provinces) which, in federation, comprise the Argentine Republic. (f) The jurisprudence of the ordinary courts, and (g) Certain treaties, such as the Montevideo International Treaty on Commercial Law. Practically speaking, insurance operations are conducted in an atmosphere of freedom. Without holding a monopoly, the State operates in the aviation branch through S A C (Commercial Aviation Insurance) ; and in life insurance (Postal Savings Fund and compulsory insurance for State staff). However, the State operates to the exclusion of private companies in the so-called "Mortgage R e demption" life insurance, through the National Mortgage Bank, which is intended to secure the loans granted by the aforesaid institution for home building (homestead promotion). Apart from all this, the Public Powers have organized pedestrian insurance in certain parts of the Republic. The Postal Savings Fund mentioned above, which is a subdivision of the National Ministry of Finance, operates a compulsory life cover for all spectators and persons participating in sports events. Other official institutions operating in insurance, as well as the S A C (Commercial Aviation Insurance) are the Instituto Autárquico Provincial del Seguro (Autarchic Provincial Institute of Insurance) and the Organismo Fin andador de Empresas Mixtas Privado Estatal (OFEMPE—Private State Financing Organization for Mixed Concerns). Over and above these relative interferences, there is a more conclusive and effective interference on the part of the State through I N D E R (National Reinsurance Institute) which is officially invested with the power to administrate all reinsurance on a monopolistic basis, and to compel the cessions to be effected by private companies; in fact, in this field so all-important to the expansion of business, the latter enjoy but a restricted right, subject at all times to such surpluses as I N D E R may reject or not be in a position to take on. As regards the Marine branch, all covers must be made, obligatorily, with national companies. The investment regime is under strict control, and specifically limited with regard to the shares and securities (public debt) and private property (first mortgages) in which the companies must place their reserves. Recently a greater flexibility has been achieved within the regime through the suppression of the control implied in certain fixed investment rates. Formerly, the State tried to take over Employer's Liability Insurance. The energetic intervention of private insurance (Asociación Argentina de Compañías de Seguros), and the consequent demonstration of the losses that often inure in said branch fortunately dissuaded those who carried this initiative ; thus a contingency was obviated which would have proved fatal to private insurance as implying a first step towards State control.

372

World Insurance Trends

As is the case in all countries, the rates, plans, and so forth offered by the companies are subject to previous approval by the National Superintendency of Insurance. Although apparently under consideration, mortality tables adjusted to the peculiar biometry of the Argentine population have not yet been drawn up (this phenomenon is not exclusive to our country). In contingency covers, the Branch Chambers of the Argentine Association of Insurance Companies (AACS) suggests the respective rates to the National Superintendency of Insurance. The National Superintendency of Insurance stipulates the periods for premium settlement, manner of payment (promissory notes subscribed or endorsed by the producer are forbidden), amount of commissions and additional charges, classification of intermediaries, etc. Because of the connection existing between the term of a contract and the simultaneous compulsory cession thereunder to the National Reinsurance Institute, companies must look strictly to payment or cancellations being effected within the definite periods provided by the National Superintendency of Insurance. Social Security is operated exclusively by the State. The Syndicates and political parties ("pressure groups") contribute, as elsewhere, to creating an atmosphere unfavorable in general, to private insurance. This notwithstanding, the current welfare regime (superannuation, maternity, disablement etc.) can well be improved upon by means of adequate supplementary covers ("family budget") provided the companies take it upon themselves to offer more suitable plans in this connection. The Argentine market is far from saturation ; but in a country destined to continual growth, both as regards population (affluence of immigration) and the industrial field (installation of new plants), any estimate ventured on local capacity for insurance must necessarily be relative on account of the difficulty in reducing the two variables above-mentioned to a common expression. Though in the beginning insurance business was operated by foreign offices, the national concerns that had been patterned after these (particularly the British and French pioneers) gradually began to take over the market until the time came when they achieved absolute majority. It cannot be said that there "is a wave of insurance beyond the frontiers." Both from a technical point of view and from the economic and social point of view (credit and prestige) the national companies are in the best possible position to take on whatever risks they may be offered. It is true that certain branches of insurance that are common abroad have not yet been operated in Argentina, nor have given forms of contracts used in other countries, been adopted; but it is also true the success in these matters is always conditioned to the temperament of the respective population (welfare mentality). The Mutual and Cooperative Insurance Societies of Argentina operate both in life insurance and in the contingency branches. The National Superintendency of Insurance as yet has taken no stand as to the definite situation in which these societies

Argentina

373

are comprised. As insurance concerns, the Superintendency only demands that they fill the requirement of registration and that they employ mortality tables when operating in life insurance, apart from which their particular methods are respected and they are amply tolerated by the mere fact of being associations established pursuant to law, whereby they are generically, if not specifically, authorized as such. These organizations occupy a preferred status as compared with companies subject to the National Superintendency regime, and cause undeniable damage to the institution by provoking an atmosphere of confusion among the insuring public, generally more attentive to the promise of doubtful benefits and the incentive o f low premiums than to the solid technical and financial guarantees offered by the companies that are subject to full State control. It is to be hoped that this situation will be modified. In the meantime, and while things continue as they are, the companies are compelled to undertake tremendous efforts to counteract—from their position of disadvantage vis-a-vis the Cooperative Societies—so unjust a competition.

SOCIAL E N V I R O N M E N T

The population of Argentina is increasing rapidly. Between 1945 and 1955 it increased almost 25 per cent. A t the end o f 1955 the population stood at 18,919,000, with the men outnumbering women 9,634,000 to 9,282,000. Catholicism is the official religion of the country, although the constitution admits the exercise o f other religions. In this aspect, as in others, the confessional and ideological diversity must be borne in mind as implicit in a human content comprised, to a great extent, o f immigratory elements and first or second generation descendants of same. In general, religious and family attitudes towards insurance are favorable. The Argentine family, particularly the head of the family in the large urban and rural centers, is fully conscious o f its moral and material responsibilities in this respect. This is particularly true in view o f the fact that, b y comparison with other countries, women have only lately begun to take part in professional and lucrative activities, by which it is inferred that the husband assumed, by tradition, the obligation to contribute the necessary economic resources for the family's upkeep. The spreading of insurance throughout the land comes up against the natural geographical difficulties (territorial extension and distance between centers of population), economic difficulties (cost o f agencies and organizations outside the local ambit of operations of the concerns,) and the difficulties of locomotion and conveyance (roads and railroads). But the important companies, resorting to their spirit of enterprise, have ably circumvented these obstacles and, through intelligent action, have reached the hintermost corners of the country. 13

374

W o r l d Insurance T r e n d s

Primary education is compulsory in Argentina, and there is a high percentage of attendance at the secondary and higher centers of learning (universities and officially recognized institutes), as also at the Schools for Capacitation and Apprenticeship. Thus, there were some 15,000 students registered for the 1955-56 course at the Buenos Aires Faculty of Economics. In 1919 the "Argentine Institute of Actuaries" was founded, and later transformed (1944) into the present "Argentine Actuarial Institute", that operates regularly. From the table given below, the breakdown of the population into urban and rural groups can also be appreciated, having in mind that the population employed in agricultural activities will be rural while the greater part of the population dedicated to industry and mining is urban (mining represents a minimum proportion within the aforesaid group). Similarly, almost the entire population employed in services will be urban. Active

Population

In Thousands of Persons

Percentages of Total Active Population

Year

Total

Total

Popula-

Agricul-

Industry

tural

and

tion 6,028

15,520

6,146

1947 1948

15.894 16,100

6,267

1949 1950 1951 1952

tural

Mining

15,260

1945 1946

Services Agricul-

2,652

1,948 1.786

1.494 1,786

2,704

6.424

1,767

1.831

16,519 16,961

6,624

1.769

6,818

1.746

1,874 1,868

17,422

7,021

ι.713 1,803

1,903 1,811

1,846

1,727

1953

7.213 7,382

1954

18,562

7,600

1,900

1,748

Services

and Mining

1,284

17.855 18,228

2,092

Industry

34-7

21.3

44.0

31-5 28.5

24.3

44.0

28.5 28.5

43 0 44.0

2,981

27-5 26.7

28.3

45.0

3,204

25.6

27.4

47.0

3,405

24.4

27.1

48.5

3,599 3,809

25.0

25.1

25.0

23.4

49-9 51.6

3.952

25.0

23.0

52.0

2,695 2,826

The average cultural level of the Argentine people is, in consequence, fairly high, particularly after the controls imposed upon emigration in this regard. As stated in the Introduction to the Annual Report by the National Superintendency of Insurance, the insurance market for 1955 has been "a true reflection of the spirit of security of a vast sector of the Republic." This declaration, which coincides with the preceding appraisal, shows that the insurance conscience has

Argentina

375

reached, in the Argentine people, a respectable degree of maturity, even though diffusion of the notion of security has not yet been undertaken with the method and intensity advisable if all possible benefits are to be obtained. 1

GROWTH POTENTIAL FOR PRIVATE INSURANCE

A t the First Conference o f Argentine Underwriters (1953) the following statement was made: In 1900 the annual premiums of the Argentine companies amounted to 3,300,000 pesos; those of the foreign companies, to 3,900,000, all premiums aggregating 7,200,000 pesos. Ten years later the Argentine companies duplicated the takings of the foreign concerns. From 1900 to 1952 the premiums collected by private insurance in Argentina jumped from 3,314,000 to 1,756,000,000 pesos. Total investments at that date exceeded 1,600 million pesos. This formidable increase in insurance activities in less than half a century is still far from expressing what the Argentine market is capable of giving. W e repeat that in a country where the population increases at a rhythm accelerated at times by immigration, and where new industries keep springing up in order to meet internal requirements, any evaluation made cannot be more than mere conjecture. Argentina's juncture, at the present time of economic recuperation, must inevitably prove favorable to insurance. Whatever capital investments are made must bring about a chain of transactions and an intensification in the circulation o f goods ; or, in other words and from our own particular angle, new risks demanding cover. Consequently, n o w more than ever must private insurance maintain a firm and decided attitude in order to perfect technical methods, lessen the legal tone of certain contracts, find more earning power for investments, popularize covers and, above all, definitely assert supremacy over State interferences from which it must rescue full freedom o f action to be able to offer the country the fruit of its most legitimate efforts. 1 In 1941 a collective broadcast campaign was launched bearing mainly on life insurance and, more recently, the National Superintendency o f Insurance has created an organization intended to inculcate the sense o f security in the masses as well as to awaken them to the principle of loss prevention.

Brazil by Luiz Mendonça Furtado *

PRESENT DEVELOPMENT

The quantitative composition o f the insurance market in Brazil changed considerably in the course of the last years. While in 1940 the number o f individual companies totalled HI, this number increased to 159 in 1955, an increase of a little over 40 per cent. Life insurance companies which numbered eight in 1944 (four exclusively Ufe and four mixed) increased to thirteen b y 1955 as five companies o f elementary lines of business extended their activities into this field. N e w modifications occurred within this picture in 1956. Throughout the period herein discussed the changes wrought were due not only to the initiative o f new enterprises but also to the inevitable and steady march of progress which found expression in the formation of underwriting groups which resulted in the subsequent founding of companies. However, whatever factors may have caused this numeric increase of operating companies, it is a phenomenon indicative o f the potential development of private insurance within the framework of the national economy. Within the decade 1946-55 premium collections increased in absolute values from 1.6 to 6.8 billions o f cruzeiros (Table 1); in adjusted values (Table 2) they increased from 4.7 to 6.8 billions. This is equivalent to an average annual rate o f increase of 4 per cent which is beyond doubt an indication of satisfactory progress. Fire insurance, life insurance, and workmen's accident insurance invariably contributed the bulk of the total receipts. Considering the adjusted value of premium collection figures, progress in most other branches of the business was reasonably satisfactory, with the exception of insurance on livestock, real estate, transportation, hospital and surgical indemnity, and surface and air transit. In 1947 total insurance premium collections in Brazil amounted to 1.3 per cent of National Income, decreasing in 1955 to 1.24 per cent. This loss does not seem important in view of the fact that National Income showed an average increase of about 6 per cent per year (in adjusted values). In view of this above-mentioned percentage decrease, however, there can be no doubt of the existence o f a field and conditions favorable to further expansion of the insurance business by making fuller use of the abundant modern media for the acquisition of additional markets. * Secretary, Federaçâo Nacional das Empresasi de Seguros Privados Capitalizaçào.

376

Brazil

377

Personal risk insurance (life insurance and personal accident insurance) amounted to 0.38 per cent of the National Income in 1947, and decreased to 0.35 per cent in 1955. It lost some ground to other branches which showed relatively better results. The latter amounted, in 1947 to 29.7 per cent of the total market receipts, while their share decreased to 28.4 per cent in 1955. The increase in life insurance production is noteworthy. Notwithstanding the inflationary process which has ailed the economic life of the country for years, and notwithstanding the substantial devaluation of our currency, collections from this field increased (in adjusted values) from 1.2 billions in 1946, to 1.7 billions in 1955· The situation is reversed with regard to capitalization which is an economic institution which, by means of contracts called "titles," has the purpose of assembling the popular savings, for their better use and usage. Receipts, in adjusted values, decreased from 1.5 billions to 1 billion cruzeiros. There can be no doubt that the future will bring new and larger activity for the insurance industry in Brazil. There is vast scope for raising the present level and improving the further development of insurance activity. This future expansion is based on several and various factors. However, three of these factors are basic: they are economical, political, and social. Let us now look at the picture in each one of these sectors. FACTORS OF FUTURE DEVELOPMENT

Economic Sector Since 1943 the country has undergone an expansion without precedent in its economic history. At that point began a stage of accelerated evolution from an economic structure which could be described as semi-colonial to one of intensive industrialization. Private initiative was predominant in the effort to accumulate capital necessary for such expansion. The data in Table 7 present an exact picture of the relative importance of public vs. private investment from 1948 to 1955. In passing it is also to be noted that by 1952 the proportion of investments increased steadily from 13 per cent to 18 per cent of the Gross National Product, with an increase in the three following years at the rate of 15, χ8, and 14 per cent, respectively. More important even than these figures, which are quantitative in character, is the trend which appeared in 1956 regarding the qualitative composition of the flow of capital. That year showed an exceptional influx of capital (both foreign and national) into basic industries like automobiles, electricity, mechanics, metallurgy, chemistry, and oil. This effected a real revolution in our economic life. A highly noteworthy aspect of the situation was the entry, in 1956, of foreign capital totaling 628.7 millions of dollars, partly contracted for financing and partly in direct remittances. In a country where the per capita income and savings have

378

World Insurance Trends

not yet reached a satisfactory level, the help of foreign capital is, indeed, a most useful aid toward economic improvement. This fact is openly acknowledged by the Brazilian government which is pursuing a policy of stimulating foreign investments, along selective lines which, while serving the national interest can be at the same time attractive to foreign capital. The economic policy of the government can be summarized as follows, in accordance with the recent message of the President of the Republic to the National Congress: (1) Priority orientation of investments; (2) Increase of the rate of internal savings, public and private, by non-inflationary means; (3) Securing external resources, both public and private ; (4) Increased productivity, both specific and special, improving technical aids, coordinating investments, eliminating waste ; (5) Expanded exploitation of natural resources available to the national economy. During the period to which we refer (1948-55) the quantity of goods and services available to the population increased, on an average at the rate of 5.5 per cent per year, and the average increase of National Income was, as earlier stated, at the rate of 6 per cent per year. No doubt, the national economy has suffered from the evils inherent in inflation. However, the government is making a reasonable and patriotic effort to re-establish monetary stability, indispensable for the progress of the nation, and this effort will no doubt be successful. Positive steps are being taken, and in time will prove effective, to combat the principal sources of the inflationary pressures, namely, the deficit in the public budget; the behavior of the banking system, expanding means of payment; a negative balance of payments. The successful solution of these emergency problems by means of the government's Development Plan, is made even more difficult by a number of problems requiring long-term solutions. (For example : bottle-necks in basic branches of the economy, adjustment of varying rates of growth which create a lack of balance between single economic sectors and large areas of the country as a whole.) In order to study and coordinate the various measures called for by the abovementioned Development Plan, the government very wisely established a nonbureaucratic organization (Development Council), presided over by the President of the Republic and consisting, largely, of Ministers of the State. Finally, it must be stated that the position of insurance within the balance of payments was not satisfactory. In the period 1951-55, this item in our international payments showed a deficit of 54 million dollars, or an average of 10.8 millions per year.

Brazil

379

In order to attenuiate the effects of this negative position, the Institute of R e insurance of Brazil created recently an "Insurance Exchange" which has the purpose of facilitating the placement, within the country, of such insurance lines which until now have been placed abroad. Political Sector Brazil is a nation with a government organized on republican lines. The preamble to the Constitution states emphatically: "All power emanates from the people and shall be exercised in their name." Consequently, liberty is the dominating principle of the constitutional system. But its exercise does not verge on absolutism; it is subject to the discipline of legislative action, in accordance with the acknowledged formula of neo-liberalism. Consequently, the tendency of modern political thinking is to establish a just harmony between the interests of the individual and those of society as a whole. All economic order is based on social justice and its principal and most important prop is freedom of initiative. The Federal Government can interfere in the economy of the country and can monopolize an industry or any other economic activity only by special legislation, which must be based on public interest and must be within the fundamental rights assured by the Constitution. These cardinal points of our Constitutional System do not form mere juridical ornaments of the Basic Statute. They do represent the synthesis of a living and palpitating reality; the type of living which is in accord with the fundamental inclinations of the Brazilian people. In the field of economy, for example, free enterprise is practically the general rule; monopolistic intervention by the State is the exception. The insurance business, therefore, was always a field entirely open to free enterprise. The present insurance regulations are in accordance with a law enacted during the period when the National Congress was in recess, and it is highly significant that Article ι states: "The exploration of private insurance activities within the National Territory will be performed by joint stock companies, mutual companies and cooperatives, as authorized by the Federal Government." It can be seen from the above that, with regard to insurance, Brazilian law follows the doctrine accepted in most other countries today, namely, it adopts the principles of authorization and fiscalization. Policy forms, general provisions, as well as in most instances premium rates, must be approved by the authorities. The placement of technical reserves is subject to legal restrictions which specify both the type of investments permitted to the insurance carrier, and the relative amounts which can be invested in certain types of investments. B y law, insurance companies must deposit a part (25 per cent) of their annual increase in technical reserves with the National Bank for Economic

380

World Insurance Trends

Development. At present another law, which extends for ten more years the provisions of an earlier five-year plan, permits insurance companies, if they so prefer, to invest directly in enterprises forming part of the Development Plan, provided that such direct investments total no less than 40 per cent of the annual increase of the technical reserves. The law does not permit the placement abroad of risks situated within the country, except when such coverage is not obtainable on the national market. The following insurance forms are obligatory: (1) Fire insurance for real and personal property belonging to one owner with a value of, or above, 500,000 cruzeiros : (2) Transportation risks insurance for shipments by one owner, equal to, or in excess of 100,000 cruzeiros: (3) Risk of workmen's accident insurance. The fact that (1) and (2) above became obligatory did not have any marked effect. However, the introduction of obligatory workmen's accident insurance was widely discussed in connection with an attempt to justify the creation of a State monopoly decreed by law, but revoked in 1953, by a new law voted and enacted by the National Congress. Social insurance is the main object of the State's concern with the insurance business. In accordance with the Federal Constitution, social insurance aims at protecting the workman and his family "against the consequences of sickness, old age, disablement and death," by means of concerted contributions on the part of the government, the employer and the employee. The State has no direct part in private insurance. Some autarchic organizations, however, bid in competition with private insurance companies. Some social insurance institutions also have charters for the writing of workmen's accident compensation, and the IPASE has charters for life and fire insurance. The latter is at present contested, pending a decision requested by the insurance companies. The incursions of autarchic organizations into the field of private insurance enterprise and other attempts which similar organizations make from time to time, are, in fact, not based on doctrinary principles. They are merely activated by the need of obtaining additional resources in order to mitigate the financial hardships to which autarchies and other semi-state organizations are chronically subject. After careful study and examination of the situation, one cannot help but arrive at the conclusion that, in the political sector, there appears to be no confluence of factors which could jeopardize the future of private insurance in Brazil. It is sufficient that the insurers be alert and well organized for concerted action at the moment when new factors may arise modifying the present outlook.

Brazil Social

381

Sector

In the period 1946-55 the population of the country increased from 47 to 58 million inhabitants, at the rate of about 2.5 per cent per year. The principal reason for this increase is the excess of the number of births over the number of deaths. Tables 9 and 10 show in chart form the growth of the Brazilian population in the above period, as well as its distribution by age, level of schooling, and geographic location. From these facts it appears that nearly one half of the population is comprised within the age limits of twenty to fifty-nine years, and that, notwithstanding the intensive internal migrations, the predominant trend being toward urban centers, more than 70 per cent o f the population in 1950 still inhabited rural areas. In the meantime various measures have been taken, and continue to be strictly enforced to combat the rural exodus. A m o n g these measures it is important to mention the following : a recent law which provides the allocation of at least 25 per cent of all funds collected by the Fund for Economic Development f o r utilization in the northeast ; the creation of the Rural Social Service, an autarchy which has as its purpose the giving o f medical aid to the rural population and the diffusion o f professional and technical instruction in the interior o f the country; the exploitation o f the abundant waterfalls, not only for the production o f electric energy, but also for the irrigation of vast arid regions o f the country. The general improvement in the standard of living was mainly due to the multiple legislation enacted for the benefit of the workers. This legislation augers continuing and increasing benefits for our working population. In addition, the ever increasing need for technical help and for skilled workers posed a problem o f professional instruction which was handled efficiently with the cooperation of foundations supported by contributions and patronymic organizations. Generally speaking, their joint efforts have resulted in remarkable educational achievements. Another event which must certainly be reported is the creation of the National Commission o f Productivity. This is a subdivision of the Ministry of Labor which has as its purpose the promotion of an intensive campaign to foment productivity. N o doubt, this objective, when realized, will result in further raising the standard of living within the country. In the field o f education the government attempts to use new methods which will be more in keeping with the social conditions created by the development of the economic structure of the country. The traditional schooling system which is largely aiming at a purely intellectual education is not the proper vehicle to carry into effect the type of education which the country needs. Realizing this fact, the government has taken practical steps to formulate in

382

World Insurance Trends

precise terms the scope of our educational problems. A complete reorganization of our educational system is being envisaged, not only along democratic lines so that its benefits will extend to all social classes, but above all, so as to be able to cater to and supply the new needs which have developed in line with the economic changes. The organization of our teaching system will have to be effected in such manner as to encompass, in reasonable stages and by mutual agreement, the different curricula, both in the field of the humanities and in the field of technical and scientific education. In the field of public health the national situation is well in hand. The authorities are engaged in an effective and well organized fight against diseases which have inflicted so many costly burdens on the community. CONCLUSION

It is evident, from whatever point of view one chooses to look at our national life, that the country has vast resources for potential development. The logical, planned, and methodical exploitation of these vast resources is our next task, and both the government and the various entities which comprise private enterprise are aware of this need. Private insurance, which has already progressed so far, continues therefore to look optimistically into the future.

1955 (Ind. ιοο) •Λ oo, CK -ο

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„

Distribution by Area 1950 Census Urban Area Rural Area

12,957,543 38,986,854

Canada by R. Leighton Foster, Q . C . * in collaboration with Frank C. Dimockf

ECONOMIC ENVIRONMENT1

Nature of the Economy National Production and Population.—Between 1928 and 1956 the Gross National Product increased approximately fivefold in value. Though a substantial part of this apparent growth was the result of rising prices, the growth in physical production was 159 per cent. The population of Canada in this period increased by 64 per cent, so that the per capita growth in physical production was 59 per cent —an indication of the improvement in living standards. An impressive characteristic of the Canadian economy in the postwar period has been the high rate of industrial expansion and resource development and the accompanying growth of the country's productive capacity. During the years from 1946 to 1956, the physical output of goods and services as measured by the Gross National Product in constant terms increased by 53 per cent or 4.5 per cent per year compounded annually, compared with an average increase of 3.5 per cent per year during the period 1928 to 1956. The number of persons with jobs increased by approximately 18 per cent between 1946 and 1956, substantially below the rise of 53 per cent in the physical volume of production, indicating a considerable gain in output per person. Factors of Production.—The increase in salaries and wages and in investment income relative to income of non-farm unincorporated business is associated with the changes in industrial structure; manufacturing, for example, where the corporate form of business organization is prevalent, has become relatively more important, while services and residential real estate, where the incidence of unincorporated business is great, have declined in relative importance. Further, the change may reflect generally wider adoption of the corporate form of business. * Managing Director, The Canadian Life Insurance Officers Association, Toronto. t Research Assistant, The Canadian Life Insurance Officers Association. 1 For the purposes of this discussion, the years 1928,1946, and 1956 have been selected for comparison. The year 1928 was chosen because it was a year of prosperity with relatively fiali use of economic resources and it did not show the unusual features of 1929 when expenditures on personal consumption and on investment were unusually high and exports fell ofif considerably.

391

392

World Insurance Trends TABLE I Factors of Production as Percentage of National Income

1928

1946

1956

%

O/

56 18

58 20

%

H 12

II

100

IOO

I. Labor income 2. Investment income 3. Income o f farm operators 4. Income o f other unincorporated business Total

JO

II

64 21 7 8 100

The decline in the relative importance of agriculture in the Canadian economy is also shown in Table i. The income of farm operators from farm production decreased from 14 per cent of National Income in 1928 to 7 per cent in 1956. The small postwar rise in the relative position of investment income is entirely due to the movement of corporation profits before taxes. Other investment income, consisting mainly of interest and net rental income of persons, declined as a percentage of the National Income. National Expenditure TABLE 2 Gross National Expenditure

1928

1946

1956

% 69

% 66

% 62

2. Government expenditure on goods and services

10

3. Gross domestic investment

15 16

18

21

4. Exports of goods and services

29

ι. Personal expenditures on consumer goods and services

5. Deduct: Imports o f goods and services Gross National Expenditure Memo: Public and private investment in Canada*

25 21

-29

27 -24

-26

100

100

100

21

H

26.5

* Consists of item 3 plus government capital outlays included in 2, minus change in inventories included in 3.

Canada

393

Table 2 indicates a number o f significant trends in the Canadian economy. (i) T h e importance o f investment in the postwar period so that in 1 9 5 6 public and private investment equalled a remarkable 26.5 per cent of G . N . P . This is the main cause of the present strain on Canada's physical resources. (ii) T h e increasing significance o f government spending in the economy. (iii) T h e declining importance o f exports and to a lesser degree of imports, indicating greater relative dependence on domestic sources of supply and markets. Also noteworthy is the larger import balance in 1 9 5 6 ; even with an unusually large increase in employment, the supply o f goods and services produced in Canada fell far short o f demand and the economy was obliged to rely on the use o f foreign resources. B y 1 9 5 6 the net inflow o f capital into Canada tended to increase even more rapidly than the import deficit and the exchange value o f the Canadian dollar in relation to the U . S . dollar rose b y about 4 per cent. (iv) T h e decline in the relative importance o f consumption; on a per capita basis, however, real consumption rose 1 4 per cent between 1946 and 1956. Stability of the Currency Since 1 9 1 3 (the earliest year for which the consumer price index is available), consumer prices have risen 145 per cent in Canada. A s a result o f war-time price controls the consumer price index rose only 1 4 per cent between 1940 and 1945. W i t h the relaxation o f controls and as a result o f pent-up consumer demands and later the demands arising out o f the Korean W a r , the index had increased 55 per cent b y 1952. A period o f relative stability followed but a renewal o f inflationary pressures resulted in the index moving up 5.5 points between June, 1 9 5 5 and December, 1956. Role of Insurance in the International Balance of Payments Life insurance premiums and annuity considerations totalled $ 7 1 0 million in Canada in 1 9 5 6 . 2 O f this, 69 per cent was received b y Canadian companies and 3 1 per cent b y British, United States and Dutch companies doing business in Canada. In addition the Canadian companies received $ 3 0 0 million or 38 per cent o f their total premium income from policyholders out of Canada. O f $ 5 8 1 millions o f other-than-life premiums paid b y Canadians in 1 9 5 5 , ® 38 per cent went to Canadian companies and 62 to non-Canadian companies. T h e premium income outside of Canada o f the Canadian companies was $ 2 8 million. Despite the international nature o f the Canadian insurance business, the impact o f the business on the international balance o f payments is a relatively minor one. 1 s

An additional $15 million of life insurance premiums was received by fraternal benefit societies. An additional $28 million of other-than-life premiums was paid to fraternal benefit societies.

394

W o r l d Insurance Trends

Current account transfers to Canada from the foreign operations of Canadian insurance companies ranged between $ 1 3 and $18 million in the years 1952 and 1955, while those from Canada to companies abroad ranged between $2 and $4 million. There have been, however, substantial inflows into Canada of funds invested by U.S. life insurance companies on behalf of their non-Canadian policyholders. The accumulation of these funds totalled $1,500 million at the end of 1955. Capability of the Banking System to Service Private Insurance and Other Commercial Transactions There are nine commercial banks in Canada. They are chartered or licensed by the federal government. These nine banks have over 4,200 branches throughout the country. In addition to doing a commercial banking business, they hold about 80 per cent of the public's savings deposits. The central bank—the Bank of Canada—commenced operation in March, 1935. The banking system is quite capable of servicing commercial transactions in Canada. Even in 1955 and 1956 when the increasing supply of savings fell short of the increasing demand for money and the total money supply could not be expanded because of the danger of inflation, the banking system managed to supply an adequate volume of short-term credit. The demands of private insurance in Canada for short-term credit are not burdensome and the banking system can easily accommodate them. Availability of Risk Capital with Specific Reference to the Needs of the Insurance Industry From 1946 to 1956 total new investment 4 in Canada amounted to about $57,000 million, about one quarter of the total gross national product. This investment has been financed from a variety of sources, with personal savings providing 21 per cent of the total, government surpluses and funds allocated to capital projects 23 per cent, undistributed corporate profits and depreciation allowances 51 per cent net and capital inflows (as reflected in the current account of the balance of payments) 5 per cent. In the past few years, however, net inflows of capital financed higher proportions of total investment. In 1956, personal savings financed 16.5 per cent of total investment, government surpluses, and capital outlays 19.5 per cent, business savings 48 per cent and net capital inflows 16 per cent. The preliminary report of the R o y a l Commission on Canada's Economic Prospects (Ottawa, December, 1956) commented on the availability of risk capital in Canada as follows: "There appears to be an inadequate supply of Canadian * Includes changes in inventory.

Canada

395

capital which can. be readily mobilized for large-scale projects requiring a concentration of equity capital on which no immediate return may be expected (page 82) . . . we expect that during the next twenty-five years the amount of foreign capital invested in Canada will be increased considerably in absolute but not in relative terms . . . if it is forthcoming we can see no serious obstacles or difficulties in the way of obtaining the total amount of capital which will be needed (page 85). . . ." Insurance in Canada has adequate risk capital for its requirements. There are eighty-three life insurance companies federally registered in Canada as against fiftyseven at the end of 1946. There were 399 other-than-life companies federally registered at the end of 1955 as against 273 at the end of 1946. As in other sectors of the economy, both Canadian and foreign capital has participated in the financing of new insurance companies. Investment Outlets for Private Insurance Funds

Assets held for the protection of life insurance policyholders and annuitants in Canada totalled $5,700 million at the end of 1955. The global assets of Canadian life insurance companies totalled $6,300 million at the end of 1955 but of this total $2,200 million were assets held for the protection of policyholders and annuitants outside of Canada. The total assets in Canada held by United States, British and Netherlands companies against their Canadian life insurance operations, amounted to $1,500 million. The assets of Canadian provincial companies totalled $100 million. The distribution of life insurance assets in Canada at the end of 1955 was as follows: Assets

$ Million

Government of Canada Bonds

800

Provincial Bonds

400

Municipal Bonds

400

Corporate Bonds

1,500

Stocks Mortgage Loans Real Estate

100 1,900 200

Policy Loans

200

Other Assets

200

Total

5.700

United States life insurance companies owned $1,500 million of additional Canadian assets invested on behalf of their non-Canadian policyholders. In all, life insurance companies held at the end of 1955 approximately 52 per cent of corporate bonds outstanding in Canada, 29 per cent of municipal bonds, 17 per cent of provincial bonds, 8 per cent of Government of Canada market securities and 30 per cent of the total mortgage debt.

39 -rf ν» νt

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i

S •-ι ij

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PREMIUM INCOME

w »

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6

n

S

+

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1,292.3

LIFE FUND

OO

•h 0 0 rî en ^t ^ ν-\ v-l Os Os Os O O Os Os

India

519

TABLE 9

Comparative Progress of Life Assurance

(In million $) ι. Business in Force 2. Premiums (Life) Income 3. Assets of Indian Insurers 4. Real Per Capita Income (in $) 5. Money Supply with the Public (in million $) 6. Wholesale Price Index (year ended Aug. 1939 =

100)

7. Production: (a) Agriculture (Base: 1 9 4 9 - 5 0 = (b) Industry (Base: 1951 = 100)

1950

1954

(O

(2)

1.564

2,224

86.9

115.3

474.6

711.9

51.66

Percentage variation of 2 over ι

+ 42

+ 32-7 + 50

56.49

+ 9-2 -3

4,158

4.034

412

368

—10

956

113.9

90.0

112.9

+ 19 +25-4

100)

TABLE 10

Progress of Life Assurance Business—New India Assurance Co., Ltd. (in '000 U.S. $)

Year

New Business Sums Assured

Business in Force Sums Assured

Premium Income

Life Assurance Fund

1930

803

655

1935

2,961

8,094

33 431

1940

3,012

19,396

1,026

3,604

1941

3,718 9,538

22,268

1,104

4.310

33,786

1,909

6.702 10,021

6-5 553

1943 1945 1947

17,605

58,540

2,914

18,987

87.885

4,474

15.790

1949

24.550

114,129

5,898

22,628

1950

28,239

132,322

6,687

26,928

1951

35.040

157,657

7,968

1952

37.889

176,085

8,811

1953 1954 1955

41,801

199,856

9,858

30,945 35.715 42,959

91,191

263,118

11,701

50,224

106,580

327,173

14,578

60.743

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J v O C ^ o o o O w N m · ^ O s O \ O s Ô v O s O \ O s O s O s

Indonesia by Percy D. Yang*

Life insurance has not achieved the development in Indonesia that it has in many countries, because life insurance concepts have not yet been accepted extensively in this country where our living conditions are fairly simple. Indonesia has not had to meet the multitude of needs encountered in countries with highly developed economic systems. Life insurance here started as an organized activity in 1859, when a Dutch Life Insurance Company was established in Djakarta (Batavia). A half-century later, in the year 1912, "Boemi-Poetera 1912" Mutual Life Insurance Company (a pure Indonesian institution) came into existence. Inasmuch as the Indonesian people were slow in accepting life insurance, only a few companies were organized. O f the early companies, only the BoemiPoetera 1912" is still in operation today. In 1954 another national company, the "Dharma Nasional," started operation. It should enjoy great growth as we have only insured 5 per cent of the population in comparison with the 67 per cent of Americans who are insured by their 1,200 legal reserve companies. It is known that the mortality rate in the tropics, especially in Indonesia, is considerably higher than in the temperate zones. Unfavorable circumstances in life and hygiene, and illiteracy are contributing factors. However, thanks to the fight against illiteracy, the struggle for better hygienic conditions, and economic development since the Independence of Indonesia, improvements have been made in recent years so that a decline in the mortality rate may be expected in the near future. The "Boemi-Poetera 1912" was modernized and reorganized early in 1955, and the American Experience Table was adopted for the calculation of premiums and reserves. This Table is also very widely used in the Philippines, Japan, and China, and in other countries whose climates and standards of living are similar to those of Indonesia. Referring to bank interest, we cannot at present speak of normal interest due to the abnormal monetary situation in Indonesia. The official bank interest at present is 6 per cent a year. However, when the transaction charges are added, the total rate becomes approximately 10 per cent. * Actuary, Boemi-Poetera Mutual Life Ins. Co. of Indonesia, Djakarta.

521

522

World Insurance Trends

The private banks have a somewhat higher interest, including charges ranging from 12 per cent up to 18 per cent a year. It may be understood that the "BoemiPoetera 1 9 1 2 " cannot accept this abnormal interest rate for her calculations, since we would have to change it each time according to the existing standard of interest. W e therefore use an interest rate of 3.5 per cent for the calculation of our premium and reserves, and 6 per cent for loans to policyholders. With respect to our investments, we try to obtain the highest possible yields for the benefit of our company and the policyholders. In view of the dense population of Indonesia, and the very few Ufe insurance companies, it is clear that the prospects are very promising for the future growth of life insurance business.

Italy by Professor Piero Sacerdoti*

ECONOMIC ENVIRONMENT

Economic Conditions Italy is a country in full development and progress. This progress is all the more significant when one considers the disastrous conditions in which Italy found itself at the end of the war as a result of aerial bombardment and the battles fought during the slow advancement of Allied troops from the south to the north of the peninsula (1943-45). War damage has been assessed at 300 billion lire (at the 1938 value) equal to 18,000 billions today, or $30 billion, equivalent to twice the national income in 1938. Not one sector of the country was spared. In fact, 20 per cent of the destruction was in housing, 10 per cent in industrial buildings, 10 per cent in railways, 10 per cent in mercantile marine (reduced from 3,400,000 tons in 1938 to little more than 400,000 tons in 1945), 10 per cent in agriculture, 10 per cent in public buildings, 30 per cent in various other types of wealth. 1 Assisted by American aid to the value of nearly $3,640 million in gifts and loans (approximately two thirds and one third) from 1943 to the end of 1956 reconstruction was based on a policy of currency stability introduced in the second half of 1947 by Professor Luigi Einaudi, then Budget Minister, and a courageous liberalization which gave an impulse to economic activity to an extent which ten years previously would have seemed impossible even to the most optimistic. The upward movement of the country is reflected by the figures relating to national income under Table 1 and from those concerning some consumer goods and means of production indicated under Table 2, together with the index figures for industrial production under Table 3. Among the characteristic elements forming the Italian economy, agriculture holds an important place. Agricultural products undergo, from year to year, seasonal variations which have an influence on the balance sheet of the nation. So, in 1956, as a result of unfavorable climatic conditions, agricultural production was about 3 per cent lower in quantity than in 1955, whereas 1955 had shown a notable increase over that of 1954. Price increase partly made up for this deficit, so that in 1956 the result for agricultural production was inferior to 195$ only to the extent * General Manager, Riunione Adriatica di Sicurtà, Milan. Β . Β . Α. Luzzato in Towards World Prosperity, Editor, Harper & Bros., 1946, p. 230.

1

523

524

World Insurance Trends TABLE I

National Income: Final Figures and Indexes 1938-56, in billions (1adjusted to reflect changes in price

Year

Gross National Income

Index of increase in Gross National Dollars Increase Income of Lire at current year's over value previous 1938 = I year

Lire at current year's value

General Index of wholesale prices

1938 =

I

Index of Increase in Gross National Income in Lire at constant value 1938 = I

7.8

—

1.00

1.00

1.00

1947

6,016

10.4

—

40.16

51.60

0.78

1948

7,090

12.3

17.8

47-33

54-43

0.87

1949

7,606

12.2

7-2

50.77

51.69

0.98

1950

8,390

10.3

56.01

48.97

1.14

1951

9.699

13-4 15-5

15.6

64-75

55.81

1.16

1952

10,210

16.3

5-2

68.16

52.70

1.29

1953 1954 1955

11,093

17.7

8.6

74-05

52.50

I.4I

11,820

18.9

6.5

78.91

52.93

1.49

12,946

20.7

86.42

53.20

I.6I

1956

13,878

22.2

9-5 7-2

92.64

53.80

1.72

1938

149.8

level)*

Current Exchange

1938 1947 1948 From 1949 to 1956

Rates

ι $ = It. Lire 19 ι $ = It. Lire 576 ι $ = It. Lire 575 ι 5 = It. Lire 625

* Figures, if not otherwise indicated, are taken from the Italian General Report on the Economic Situation of the Country in 1956 presented to Parliament on March 20, 1957—later abbreviated to Italian General Report, 1956.

Italy

525

TABLE 2

Comparison Between the Years 1949 and 1955 for Certain Consumer Goods and Means of Production

1949

1955

Index 1955 1949 = 100

1.793 50,090

2,955 147,397

169.5 294.0

266,928 5.028 208,821

879,313 10,365

324.4 206.1 170.6

I. Consumption of electricity for illumination purposes (in million kwh) 2. Farm tractors in action 3. Four-wheeled vehicles in circulation: Motorcars Omnibuses Lorries Trailers Total Two-wheeled vehicles: over 125 c.c. up to 125 c.c. (motorscooters) Total 4. Number of newly-constructed rooms per annum 5. Radio licenses 6. Telephone subscribers 7. Expenditure on entertainment (cinema, theatre, sports) : in Lire in % 8. Tobacco consumption (in quintals)

25,608

356,287 34,663

506,385

1,280,628

252.9

171,585 293.991

467.741 2,180,336

272.0 741.0

465,576

2,648,077

567.7

1,421,260

545· ι 222.7 231.1

259.135 2,611,330 789,646

72,083,000 "5,332 383,330

5,815.395 1,826,387

147,633,000 236,212 480,214

135-3

204.8 125.2

$26

World Insurance Trends TABLE 3 Index Figures for Industrial Production *

Years

1951 1952 1953 1954 I95Í

General Index 1938 = 100

144 150 164 181 196

Branch of Industry Mineral Extraction

Manufacturing

Electrical

123 194 179 200 241

140

185

144 159 176 191

194 205 219 233

* N.B.—Italian Statistical Year Book, 1956, p. 201.

of 1.4 per cent. On the other hand, industrial activity and public services show a steady increase, respectively of 7 per cent and 11.6 per cent in 1956. Because of the retrograde movement in the agricultural sector the total increase in the National Income for 1956 only reached 4.1 per cent as against 7.2 per cent in the previous year (after adjustment in price level). It should be noted that also in Italy—as for all those countries in which the national productivity is increasing—the agricultural population is decreasing to be absorbed in the industrial and public services sectors, as results from Table 4. TABLE 4

Male Population divided as to Economic

Branch of economic activity

Agriculture Industry Other activities Total

Activities*

1911

1931

1951

55-2 27-3 17-5

49-9 28.5 21.6

42.5

100

100

33-5 24.0 100

1956 estimate 38 36 26 100

* Italian General Report, p. 61.

Within the general framework of national income, salaries tend to increase at a rate superior to that of prices of goods and public services, as can be seen from the figures under Table 5.

r r> O r sñ ' ^? »^ N _ ? ^^T O>-oi O Ò O v oc Κ ^ Ά· ri mΝ Ν ooO·v. Ό ri ^^ f-·Νrκι 4 oo Tt • "Φ NN Μ' Μ Η 30 J. f o r1- i N V - i Q o5- O HO 1VI «Ν Μ « Ο _ οο « OC ¡O \£5 ν» •ΟΛ « 'S ^ Ò Ì S ' Ì - Ì NΝ- M rí M l-t· Vi ^ Ο ι « Ον Ο ^ " ^ΝΟ r ô>0 Mn i Μ «A ΟO à?„ O HΊϊo V-«»A r ò^ Η 0\«Λ (S iMMMrn Ό 0\ ríΟ ΟΟ Η0\ «Ο μπ· «ÖΟ ΟΝΟί· SΆO ΟΝOOΝOOο^NOΗt-» m* Ν^ —et Ν rμ.r«*"->> tν--t. ν-'Ό***> OΟ ^ O Ηo Μ Ο Ο ^ ΟΗ ».

499

384

240,000 „

192,000

„

384

307

192,000 „

152,000

„

307 „ 211

132,000 „

108,000

„

211 „ I72

108,000 „

69,000

„

172 „ IIO

312,000 „

„

From Table 6 it emerges that the three lower-income groups of provinces make up t w o thirds of the total. These figures explain w h y one of the major problems for the Italian economy is that of stimulating activity in the underdeveloped areas, 1 Tagliacarne in the review Moneta e Credito, 1955, p. 207. T h e net national i n c o m e 1955 (It. Lire 9.690 billions) divided per head is that produced b y the private sector and public administration. T h e gross national i n c o m e is obtained (Lire 12.946 billions) b y adding the amount o f taxation o n revenue f r o m abroad, and amortization (see T a b l e 7, col. 9).

Italy

529

made up largely of Central, Southern Italy, and the Islands. To this end the Fund for Southern Italy was established in 1952 with the aim of creating a favorable situation for a more intensive development through public works and the encouragement of private enterprise. For this aim the government assigned 1,870 billion lire to be spent over the period of twelve years (1952-64). In the same regions, another important government project is, for example, that of land reform aiming at facilitating the acquisition of agricultural land by the peasantry. In the four years from 1952 to 1955, the State invested L.1,095 billion ( $ 1 . 7 billion) in the Southern underdeveloped areas, of which L.548 billion ( $877 million) went to the Fund for Southern Italy, that is, 38 per cent of public investments of the Italian State. This effort is beginning to bear fruit 3 and in its effective and rational continuation he the hopes of economic improvement for the underdeveloped areas which, in its turn, will permit the release of larger sums for public welfare schemes. Distribution of Income

The distribution of the National Income between consumption and investment for the last ten years is shown in Table 7. The action of the State and Public Administrations in the field of redistribution of the National Income in Italy is considerable. In fact, total taxation in 1955 amounted to L.2,583 billions ($4.1 billion) and in 1956 to L.2,964 billion ($4.7 billion), respectively 21.9 per cent and 23.5 per cent of the National Income, T o these figures must be added the amount paid for social insurances which also constitute a compulsory levy on income and which reached 9.7 per cent in 1955 and 9.1 per cent in 1956 of the National Income. Thus, the total for taxation and social insurances reached 31.2 per cent and 31.6 per cent in the last two years, equal to almost a third of the national income. Population Growth

Growth of population for the last century, which constitutes one of the great spurs to progress, is represented by the figures shown in Table 8. As in other western countries, Italy tends toward a progressive diminution both for natality and mortality, but as the mortality rate diminishes more rapidly than the birth rate this results in an increase in the final figures. The consequence of this process is a progressive aging of the population: from 1861 to 1951 the percentage of population up to fourteen years of age has gone down from 32.2 per cent to 24.4 per cent whereas that for fourteen to sixty-five years has risen from 63.6 per cent to 67.4 per cent, and that from sixty-five years upwards from 4.2 per cent to 8.2 per cent.4 This aging of the population will eventually have definite 3 Livio Magnani on Italy's achievements and experiences in depressed areas, in Review of the Economic Conditions in Italy, Banco di Roma, January, 1957, p. 17 and onwards. 4 Italian General Report, 1956, p. 61.

(10) (II) Percentage Percentage of Consump- of Investtion National ments on Income National Income 5:9 2:9 Investments

^ 3 §Κ iYi 0 Sí

si 1 — ga 4-> g

(2) Consumption

á

r«·} n ^ 00 ce 0 ^ ^ h ^ l· M rn Ν O t""^O Γ"·» t>M. ^ ^ Ό

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(I) Years

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00 I

(9) Gross National Income (8) Import of Goods and Services (7) Total resources available (6) Export of Goods and Services I1 u s

^ 'Φ 0 NO r*- 0 h· ά 00 ά " 0 0 »-< Ν ri

00 " i Ν í l on TfOl h· O Ν Ν Ν Ν f«ì ^ Μ Μ 4 ^ h W » ο ^ Οι Ο Ο XP t^ Μ ^ «Λ Η » CO ^ Μ Ό η ^ 'Ο Ο^ ^ t eh Η Ν Η Η Η ff ff Ν ri rf on OOO Ο M 'φ "Λ Vi Ό 00 0\ Q

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$42

World Insurance Trends

This minor development in the life branch after the war is to be attributed to, in the first place, the enormous development of social insurance which has drawn away a large mass from the private company; in the second place to the lack of energetic collective propaganda calling the attention of the saving public to life insurance instead of other forms of saving ; in the third place to the psychological effects of the war and postwar devaluation not yet forgotten by the public and which particularly hit long-term savings, of which insurance is a typical example. However, the fact that the devaluation of the war period has not weakened the population's will to save is demonstrated, among other things, by the deposits in the savings banks which, in 1955 were 62.7 times those for 1938, i.e. by a coefficient equal to that of the cost of living; deposits in the Post Office Savings Accounts were 56.1 times and those in the other banks 93 times the respective figures for 1938. Hence, one can draw the conclusion that the two prime factors indicated above (development of social insurance and lack of collective propaganda in favor of life insurance) are the most important in determining the inferior harvest of life premiums as compared with prewar. (c) As regards the increment in non-life, this has been quite different, from branch to branch, as can be seen from Table 15. The maximum increment (249 times) has been in the motor and third-party branches. In the same period, the motorized traffic showed an increase from TABLE 15 Premium income in Non-Life Branches in 1 9 5 6 {provisional data) and index of increases for

1938-56 (expressed in millions)

Branches

Increase

1956 It. Lire

$

Motor & Third Party

58,000

92.8

249

Fire

23,000

36.8

Marine

21,000

33-6

72 92

Accident

1938 =

15,000

24.0

US

Hail

6,000

9-6

Burglar)'

4,000

6.4

41 150

Credit & Deposit

1.350

2.1

460

800

44

1,200

1-3 1.9

130,350

208.5

122

Aviation Various Total

53

I

Italy

543

151,000 two-wheeled and 386,000 four-wheeled vehicles in 1938 to 3,000,000 and 1,440,000 two and four-wheeled vehicles in 1956, respectively. This was an increase of 19.86 times for the two-wheeled and 3.73 for the four-wheeled. This branch now absorbs 40 per cent of the market's non-life premiums as against only 20 per cent in 1938. Also the accident and marine branches arc going ahead strongly. The credit and surety branch was almost non-existent in 1938, so the percentage of increase is applicable to only a small amount of premiums. (d) The percentage of premiums on the National Income remains extremely modest on the whole (1.40 per cent in 1956), even if the non-life branch has notably surpassed the figures for 1938 (0.99 per cent against 0.75 per cent—column 16 of Table 14). To give a proper value to the percentage of 1.40 per cent, it is indispensable, as stated above, to take into account the approximately 9 per cent absorbed by the social insurances. As a grand total, the social and private insurances absorb about 10.50 per cent of the National Income, a figure which can be considered high in a country such as Italy, which still has a modest income. The over-all capital investments of the National Insurance Institute (INA) and private companies at the end of 1955 amounted to 420,708 million lire ($637 million) as against 352,584 million lire ( $564 million) at the close of the preceding year. Of the investments as at the end of 1955, an amount of 239,500 million lire ( $383 million) is represented by deposits and tied reserves on the basis of the legislation previously mentioned. The composition of capital investments, deposits, and tied reserves as of the end of 1955 can be seen from Table 16. TABLE 1 6 Composition of Capital Investments of Insurance Companies at end of 1 9 5 5

Real Estate Mortgage Loans Bonds issued or guaranteed by the Italian State, and analagous Stock Investments Other Italian Bonds Foreign Bonds Cash in Banks

Total Capital Investments (percentage)

Investment of Reserves and Tied Deposits (percentage)

41 H

48

8

30 4

7 8

15

—

II

I

II

2

IOO

100

544

World Insurance Trends

The increment of investments from 1954 to 1955 has been of 70 billion lire ( $ 1 1 2 million). This corresponds to about 7 per cent of the new personal savings actually valued at about 1,000 billion lire per annum (S160 million). Given the intense need of the Italian economy for capital to finance its big development necessities, this insurance contribution cannot be ignored, while it is to be hoped that this will increase in the future. Following an old tradition, the Italian insurance companies have considerably developed their activities abroad, both in the direct and indirect field. Before the war, a large expansion area was represented by Central and Eastern European territories which passed under the control of the U.S.S.R. after the war and have been completely lost to private insurance. In the postwar period, the Italian companies have accentuated their efforts in the western hemisphere and have partially succeeded in recuperating their losses on other markets. For 1955, the figures for the foreign portfolios of the Italian companies are as follows:

In millions of lire Direct Premiums Indirect Premiums

In millions of dollars

18,480 53.636

29.6 85.8

72,116

115.4

These figures are thirty-two times higher for direct business and one hundred times higher for indirect business than in 1938. Taken as a whole, these correspond to about 40 per cent of the national portfolio, a most notable proportion, which demonstrates the spirit of expansion which animates the Italian insurance industry. Precise details are not available as to the contribution of insurance activity to the international balance of payments. Before the war this contribution was high and one can presume that it will again gradually reach a notable entity. GROWTH POTENTIAL

From the above-mentioned elements one can, on the whole, draw favorable conclusions as to the prospects for private insurance development in Italy. These prospects are based on : (a) The anticipation of a continued development in the National Income. In the "Ten Year Scheme for the Development of Employment and Income in Italy," established in 1954 by Budget Minister Vanoni, and known under the name of the

Italy

545

"Vanoni Plan," this increment is foreseen as 5 per cent per annum. To this should correspond, as above indicated, an increment of at least double in insurance premiums ; (b) The progressive increase in population, creating intense new needs including those of an ever-increasing insurance protection. These prospects are, however, conditioned by various factors : The development of social insurances should not go beyond the requirements of a minimum guarantee, considered socially opportune as a cover for certain classes of the population which, because of their economic conditions, are not in a position to be personally responsible for their individual insurance cover. Only on this condition can private insurance hope to exercise its role, which is to encourage a sense of individual responsibility which manifests itself in the spirit of insurance. An excessive development of the social insurances creates the false impression that the community can and must assume the risks to which an individual is exposed during his lifetime and blunts individual effort to provide personally against the perils and damaging eventualities of existence. The National Income, apart from the growth in absolute figures, needs to be more evenly distributed, as has been happening in recent years, between the various classes of the population and the various regions, to bring about an increase in the number of persons who, having a larger personal income, can allocate to insurance a higher figure annually, and not just the number of beneficiaries in the higher income brackets. The providential spirit, traditionally widespread in Italy, needs to be better directed to the idea of insurance and to the characteristics of saving through insurance by means of a collective effort on the part of the companies, up to now not sufficiently alert. So far, in fact, insurance propaganda has been largely left to agents and canvassers, who are certainly indispensable to the diffusion of insurance. However, through intense publicity, the public is drawn toward attractive and highly varied consumer goods of new kinds and for immediate enjoyment so that the traditional, personal methods alone are no longer sufficient to call the attention of an ever-growing clientele to insurance. Apart from the collective efforts for informing the public, it would also seem indispensable to make a more profound effort toward greater professional knowledge on the part of those dedicating themselves to insurance, especially the agents and canvassers in all categories and branches. Up to now, their instruction has been left more to their individual exertion and good will than to an organized system having the aim of a more ample and diffused efficiency and recruitment.

Mexico by Manuel Alonso De Florida*

Within a limit o f 2,500 words to expound the development and the situation of insurance business in a country, little can be said, but in my desire to perform the commission I have been given I will try to do it. Mexican insurance appeared simultaneously and as a consequence o f the law promulgated in Mexico in 1936, which formed a favorable climate to the development of Mexican insurance. In our country there was a period between 1910 and 1924 when the revolutionary agitation stopped the commercial, industrial, and agricultural development of the country. W h e n the necessary social laws were promulgated to reflect desires of our people, a reconstructive period started and the need to adjust our insurance laws to the Mexican reality, which culminated with the publication of the aforementioned law in 1936. The following statistical information reveals the insurance expansion in Mexico and the efficiency with which Mexican insurers have carried out their duty.

1940

1955

Capital and N e t W o r t h Capital o f the Companies

$21,459,000.00

5

214,513,000.00

Technical Reserves

83,453,000.00

1,111,711,000.00

Collected Premiums

50,930,000.00

879,867,052.00

Mexican insurance can be separated into two great branches: life insurance and related risks, and property damage, the latter in turn being divided in t w o groups, the first one to protect the property and the second to protect agricultural and livestock activities. W e can appreciate that Mexican insurance companies have known how to grant an adequate protection under Ufe and casualty insurance to encourage the economic development o f our country. * General Manager, "La Azteca," Cía. Mexicana De Seguros. 546

Mexico

547

Mexico, an essentially agricultural country, which agriculture had to suffer readjustments after the revolutionary period, needed and still needs abundant credit, not only to fulfill its present needs but also to plan future activities, since the constant growth of our population and the increase in the standard of living claims every day a larger amount of agricultural products. Land ownership in Mexico is divided in two sections : private—represented by private citizens—and the one we might say organized and directly watched by the State, which is the public land. The credit that the Mexican agricultural economy needs lias never been opportune, cheap, or efficient, and this is due mainly to the lack of assurance that the sums advanced would be recovered because of the very special climatological conditions in our country. Before this view, the Mexican State, always respectful of the rights of private initiative, asked the Mexican insurance companies to cooperate with it in order to afford the necessary insurance protection to agricultural activity. In 1944 the agricultural insurance provided by the insurance companies included only hail insurance. Although coverage of this risk worked out very satisfactorily, the protection proved to be defective inasmuch as there were losses caused by other risks in different places in the country, the main cause being the orographic conditions. In view of this fact, in 1956 the government asked the companies writing hail insurance to create a Consortium to initiate and develop the so-called Agricultural Integral and Grazier Insurance to provide insurance against freezing, hail, drought, flood, hurricane wind, fire, plagues, and cryptogamic diseases to tillage from its vegetative cycle to harvest. This Consortium operates with the land owners who voluntarily subscribe the policy that said Consortium has in force. The policy promises to indemnify the farmer only to the extent of his out-of-pocket expenses for tillage. This limitation has a twofold purpose: to keep premiums within reasonable bounds and to give the farmer an incentive to realize the fullest potential of his crop. Since the government realized that this new insurance form had neither precedents nor sufficient statistical basis, it was intrusted to the experience of the aforementioned insurance companies. The government provided excess of loss coverage in order to protect the investments made, as well as capital and reserves that said companies added to other branches of insured properties. At the request of a great number of farmers who do not own the land they till, several mutual companies have been organized to provide this Agricultural Integral and Grazier Insurance. When these farmers finance their crops by credit extended by the government, the latter requires the farmers to carry insurance in order to guarantee the recovery of its loans. The government provides the insurance through a financial and technical trust that was established at Banco de México, S.A., to secure a good administration.

548

World Insurance Trends

Both insurances have the same structure, thus giving stability to the credit that the field needs in order to develop the present and future rural production. Believing that with the foregoing I have given a brief idea of the Mexican insurance, I wish to specially call your attention to the fact that in our country the State, respectful of the rights of private enterprise and recognizing the greater efficiency of private organizations, has adopted the principle that insurance must be handled by private companies. The government has considered it desirable that the guiding organization of such an important activity as insurance be made up of representatives from both the government and the insurance companies, and, hence, the National Insurance Commission has a Board of Directors in which insurers have two places with voice and ballot. At the same time, a permanent commission has been created to make insurance studies, and this organization formulates those necessary changes to the insurance laws to obtain a better operation. In this organization insurers also have two representatives with voice and ballot. I hope that the above information will be of interest to my fellow members who read these lines, and if any of them require additional data I will be glad to furnish it.

The Netherlands by Κ. H. Schreiber*

ECONOMIC ENVIRONMENT

Eleven million people are living in an area of about 12,500 square miles, producing a population density of 875 per square mile. This area consists of 43 per cent clay, the remaining 57 per cent being sand and peat. The soil contains few minerals only, coal salt, and oil being present. Fifty years ago the population numbered 5.6 million, while a century ago it aggregated 3.3 million. Trade and shipping began to develop strongly about four centuries ago, but industry—now the biggest employer—started later than in Great Britain, France, and Germany. At present the great Dutch enterprises (electrical engineering, fat, crude oil, aviation, and so forth) are well known far beyond the national boundaries. The Dutch people owe their commercial ability and aptitude for saving to their historical development. N e w lands to live on had to be wrested from the sea. At an early date insurance played a role, and it is not by accident that the father of the science of insurance, Johan de Witt, was a Dutchman. Economic

Indices

World War II destroyed much of the prosperity attained, but aided by the international upward conjuncture both reconstruction and further economic growth developed prosperously. TABLE I

Distribution of National Income for Selected Years (percentages)

Year

Industry

Agricul-

Trade and

ture

Commu-

Others

Govern-

Abroad

ment

nications 1938 1948

30

7 12

21

26

8

8

38

22

15

10

2

1955

43

II

21

13

9

1.6

* Economist, Nederlanse Vereiiiging Ter Bevordering Van Het Vevensverzekeringwezen. 549

5J0

World Insurance Trends

The National Income at market value adjusted to reflect changes in price levels (values o f 1938) amounted to (in millions): 1938, Fl.5,390(Si,418); 1948, Fl.6,214 ($1,635); and 1955, Fl.8,885 ($2,338). (Nominal amount for 1955: Fl.26,730 ($7,015).) This was an increase o f 65 per cent or 33 per cent per capita. In the U . S . A . the proportional increase was four times as large, in Canada five times. The distribution o f the National Income for selected years is given in Table 1. T h e structural changes are clear. T h e distribution o f assessable persons according to income groups in 1953 shows that 89 per cent earned less than Fl.5,000 ( $1,315), 8 per cent from Fl.5,000 to Fl.10,000 ( $1,315 to $2,632), and only 3 per cent over Fl.10,000 ( $2,632). Their incomes amounted to 63 per cent, 18 per cent, and 19 per cent o f the total assessable income respectively. TABLE 2 Expenditure of The National Income for Selected Years

Year

1938 1948 1955

Consumption (%)

Investment

(%)

81

2

78 63

H 16

Government Expenditure (%)

Savingsurplus

13 16 18

+ 4 -8

Depreciation for Gross National Product (adjusted amounts)

(%)

Fl. 480 ,, 642 „ 748

+3

$ 126 min. „ ιόη ,, „ 198 „

Stability of the Currency T h e Dutch national currency shared the fate o f most European currencies and had to be devalued more than once. The U . S . dollar was at Fl. 1.88 in 1938 as TABLE 3 Growth of Life Insurance During Period 1938-55 (Amounts in Millions and Adjusted)

Year

Insured amount

Premium income Total

1938 1948 I9S5

%

Fl. 4,668

1,228

Fl. 184

5.077 7,916

1,336 2,083

163 227

Periodical prem. inc.

Periodical only

$ 49 43 60

Fl. 116 119 188

? 30 31 49

as % of nat. income

2.1 1-9 2.1

Index (per capita) Nat. income

100 102 133

ins. amount

100 97 137

The Netherlands

$51

compared with Fl.3.30 in 1956. (All conversions in this paper have been made at the latter rate.) The price level rose to 229 per cent in 1948 and to 302 per cent in 1955. A decrease in buying power of one third as compared to 1938 is of course no incentive to saving, and neither is the yearly depreciation of 2 to 3 per cent. It is also on this account that private savings with savings institutions in 1955 amounted to only 110 per cent of those in 193 8 (adjusted amounts), with the national income up to 165 per cent. The life insurance companies have done considerably better than the savings institutions which were partly favored by fiscal facilities, of which more later. The total amount insured -with these companies rose to 169 per cent (absolute amount Fl.23,908 millions, $6,290 millions). Role of Insurance in the International Balance of Payments

In international payments life insurance companies play an insignificant role. The premium reserves for the foreign portfolio of the Dutch companies and the Dutch portfolio of the foreign companies working in the Netherlands (of which there are only a few) have for the greater part to be invested in the respective countries themselves. The foreign reinsurance premiums amount to only about ι per cent of the total premium income and are for the greater part compensated by premiums for retrocessions and by loss payments. The amounts in the balance of payments relating to insurance chiefly refer to non-life insurance (balances : 1953» —F.2 min. ($0.5 min.); 1954, + F1.68 min. ($18 min.) ; and 1955, +Fl.5omln. ( $13 min.), making 0.0, 0.6, and 0.5 per cent of the total amounts, respectively. Availability

of Risk

Capital

The demand for risk capital is met predominantly by the retention of benefits within the enterprises. In 1955 only 11 per cent of the new investments was obtained by the issue of new shares, which caused no difficulty as sales of Dutch international shares made considerable amounts available for reinvestment. The banks are under government supervision and their money-creating activities are tied up. Life insurance companies still prefer to invest in non-risk objects. Their investments amount to 25 per cent of the investments of all large investors and to 50 per cent of the consolidated national debt (December 31, 1955). The investments of the life insurance companies amounted to (adjusted amounts): 1938, Fl. 1,374 min. ($363 min.), and 1955, Fl.1,865 min. ($490 min.), an increase of 36 per cent. The distribution of the investments in 1955 was as follows: real estate 7 per cent, mortgages 17 per cent, bonds and shares 14 per cent, loans 45 per cent, other investments 16 per cent. Of the money invested 51 per cent went to the government and only 4.6 per cent to industry. Public

Attitudes

The insurance business enjoys a favorable reputation. Its necessity is generally fully acknowledged, even in the case of compulsory insurance. The press has been

5J2

World Insurance Trends

greatly interested in life insurance these past f e w years. The sensible policy o f the life insurance companies to use the greater part o f their profits to increase their reserves has obliterated the former rather general belief that the companies were only profit-mongers. The services rendered have contributed to the recognition o f the social function o f the life insurance business. As no data on the non-life insurance companies are available the part o f the expenditure of the National Income spent on insurance can only be estimated. According to a reliable estimate the population spends more than 10 per cent o f its income on voluntary and c o m pulsory insurance. POLITICAL ENVIRONMENT

Legal Code Dutch civil and commercial law contains very little on the subject o f the insurance agreement, which in consequence is governed for the greater part by the general law o f contracts, jurisprudence, and the general conditions o f the insurance companies. T h e legal relationship between the insured and the insurers is carried out nevertheless pretty well without any friction, and the insurance companies are not even interested in a detailed legal codification within the framework o f an impending change o f Dutch civil law. Governmental Activity in the A rea of Insurance O n the other hand the supervision o f the life insurance companies has been regulated since 1922 very thoroughly b y the creation by law o f an "Insurance C h a m b e r . " T h e Chamber decides on the admission o f Dutch and foreign companies, the latter being obliged to deposit certain securities and the actuarial reserve o f their D u t c h business in the Netherlands. For the rest the activities o f the Chamber are confined to the regular control o f the insurance companies and their annual reports which have to be very detailed. T h e Life Insurance A c t does not contain any regulations as regards premiums, investments, the method o f calculating the actuarial reserve, commissions, and so forth, but the insurance business has o f its o w n accord set up a uniform tariff policy under a gentlemen's agreement, at least for private insurance, and in this w a y restricts competition. T h e Insurance Chamber does not intervene unless necessary, and then the intervention is limited to a confidential advice. O n l y if this does not gain any result it may proceed to publish its advice. T h e company, however, is given another opportunity to prevent this publication. If an insurance company should be in financial difficulties emergency measures will have to be taken, but this necessity has not arisen once after the reorganization o f the insurance business during the first f e w years after the A c t came into force. Furthermore, only once has a confidential advice had to be issued, and it was not published. So the life insurer can carry on his trade in complete freedom, and the law sees to it that

The Netherlands

553

he does it in a responsible way. On the other hand he is obliged to publish in detail all data of his financial and actuarial position. This system has given complete satisfaction and increased the confidence of the general public in the life insurance business. An inexpert and unsound practice of the business is thus prevented without in any way limiting the insurer's freedom. In non-life insurance a regulation like the above is lacking up to now, and in conséquence hardly any data are available about this branch. In 1954 the problem of the intermediaries in all branches of insurance was regulated by law. Opinions as to the necessity of this measure differ. Only he whose name is inscribed in a central register on the basis of a certain minimum portfolio and proved expert knowledge may act as middleman and it is only through him that an insurer may transact business. At the moment there are more than 40,000 registered middlemen. As is the case nearly everywhere else, the Dutch Government has occupied itself to an increasing degree with the introduction of social insurances. Health, accident, disability, and unemployment insurance are compulsory for all workers earning less than Fl.6,900 ($1,815) a year- An existing old-age insurance plan of 1919 is entirely out of date. Except in the social field there is no compulsion of insurance, not even in the area of automobile and third-party liability insurance. After World War II three laws aiming at increasing social security were enacted. Perhaps the most significant is the General Old Age Insurance Act, in force as of January 1, 1957, which guarantees for everyone sixty-five years or older a yearly pension (coupled to the wage index) of (at present) Fl.846 ( $223) for single persons and Fl. 1,404 ($369) for married couples, irrespective of their other income. These amounts protect the aged against indigence, but hardly offer a bare minimum of existence. The premium amounts to per cent of the income with a maximum of Fl.6,900 ( $1,815). For workers the premium is paid for the greater part by their employers. The payments under this law at present involve a yearly expenditure of Fl.800 ( $ 2 1 1 ) min., which is defrayed by an assessment system. A bill providing for widows and orphans is being prepared. The other two laws deal with the pension regulations already made and yet to be made by private enterprise, which supplement the above-mentioned old age pension. For the separate branches so-called trade pension funds for all workers in that particular branch can be made compulsory. Both premiums and payments are modest. Enterprises with an old age pension regulation of their own—in many cases through the intermediary of a life insurance company which is one reason why the amount of group insurance in the Netherlands is relatively higher than in other countries—must obey strict rules tending to safeguard the pension rights. For instance the reserves have to be invested and kept and administered independent of the enterprise. The workers have a voice in the administration.

554

W o r l d Insurance Trends

Both of these kinds of funds are subject to supervision by the Insurance Chamber. In 1954, thirty-one trade pension funds and twelve hundred private pension funds with 1.3 and 0.3 million insured persons were registered. The premium incomes amounted to Fl.155 ($44) million and Fl.209 ($55) million, respectively. Investments aggregated Fl.1,038 ($273) and Fl. 1,767 ($465) million, respectively. Notwithstanding the government's activities in the life insurance field the private companies still have a lot of elbow room. Non-life insurance is only limited by the compulsory health and accident insurances. So there is a healthy symbiosis. The attitude of the government toward life insurance is very favorable. Premiums for annuity and similar insurances may be deducted from taxable income up to a maximum of Fl.3,600 ($947). In view of the strongly progressive nature of the taxes the life insurance companies have profited largely by this possibility, the more so since with other saving methods no corresponding facilities exist.

SOCIAL ENVIRONMENT Population

Characteristics

W e have already drawn attention to the sharp growth of the population. From 1897 till 1956 the population increased from five to eleven million, the increase from 1939 to 1956 amounting to 25 per cent. The density of the population which in 1897 was 391, had risen in 1956 to 875 per square mile. This tremendous growth was caused both by the great number of births and an increase in the average age. The increase in life expectancy that has occurred during the last half-century is shown in Table 4. TABLE 4 Life Expectancy at Selected Ages for the Periods 1890-99 and 1950-52

o

10

20

40

60

80

28.1 34.9

14.0 17.8

4.7 5.8

29.7 36.3

15.0 18.6

5.0 6.1

Men

1890-99 1950-52

46.2 70.6

51.7 63.4

43.4 53.7 Women

1890-99 I9JO-52

49.0 72.9

53.0 65.1

44.8 55.4

The tendency of the population as a whole to grow older may be expected to continue. On the other hand it will stimulate provisions for old age. One consequence of the growth of the population is the migration to the cities with their greater opportunity for work. The magnitude of this migration can be seen in

The Netherlands

555

the following exhibit of the distribution of the population as between rural and urban areas. less thill

5,000-

ΙΟ,ΟΟΟ-

20,000100,000

100,000

5,000

10,000

20,000

and more inhabitants

1899

34-3%

17.1%

ΐ2·2%

Ι4·ΐ%

22.3%

1954

13-3%

13-8%

14-4%

27.0%

31.4%

Together with the increase in the food supply, this migration also advanced insurance. Of the economically active population 37 per cent is working in industry, 20 per cent in agriculture and fishing, 13 per cent in commerce (including retail trade), 1 1 per cent in banking, transport and traffic, and insurance (1 per cent), i l per cent in public services and professions, and 8 per cent in other trades. According to the latest (1947) census there were 2.5 million households, making an average of four persons per household. Familial

and Religious

Attitudes

Of the Dutch population 38.5 per cent belongs to the Roman Catholic Church, 31.1 per cent to the Protestant Church, 9.7 per cent to the Calvinistic Church, and 3.7 per cent to other religions, whereas 17 per cent do not belong to any religion at all. The attitude of the various sects towards insurance is predominantly very tolerant. For the Roman Catholic segment of the population the positive pronouncements on insurance by the Pope in 1956 are of great importance. It is only in the Calvinistic groups that local opposition against insurance is found, but this is practically negligible. Generally speaking religion has neither a stimulating nor a curbing influence on insurance. The very intensive family life and the wish to advance the future of the children have a stimulating influence on insurance. Level

of Education

Although the general cultural level of the population is not unsatisfactory there is a dearth especially of technical university graduates. The foundation of a second technical university will contribute to increase the number of university-trained engineers who are urgently required in the beginning of the Era of Automation. This development is also of great importance with a view to increasing productivity which is the principal means of raising the general level of prosperity. Secondary technical training is at a very high level and turns out a fair number of highly competent technicians. The composition of the population according to training is not known. From the composition of the school-attending youth only very limited conclusions can be drawn. In 1954. the attendance was as follows (in thousands of pupils) : 1,608 elementary schools, 99 secondary schools, 296 technical schools, 60 agricultural

j jó

W o r l d Insurance Trends

schools, 28 universities. The number o f persons studying out of school (courses and self-tuition) is unknown but must be considerable. In 1953 the division of those attending a university was as follows: medicine 25.6 per cent, technical science 17.3 per cent, exact and natural sciences 15 per cent, economics 14.1 per cent, literature and philosophy 11.4 per cent, law 9.7 per cent, theology 4 per cent, and agriculture 2.9 per cent. It is not necessary to dwell on the achievements of Dutch scientists. It is urgent that the percentage (0.25 per cent) of those training at a university should be increased. The thrift and the traditional commercial aptitudes of the population are favorable for insurance, though there is still much to be done to make the insurance idea penetrate into all walks of life and to augment the elementary knowledge about insurance as shown by a recent public opinion poll.

G R O W T H POTENTIAL

Since neither from a political nor social point of view are there any especially stimulating or curbing factors (except in the fiscal ñeld), Dutch insurance business depends in the first place upon the economic development of the country. The Netherlands is a small, densely populated country without a great many mineral treasures. Its open economy makes it largely dependent upon world economy. The European economic integration will no doubt be full of difficulties in the beginning, but it will also open possibilities o f a stronger continental division of labor and so in the long run bring about an increased prosperity. There is no doubt but insurance will have its due share of the increasing prosperity. Its development is not a question of tenacity, inventiveness, or propaganda but of the degree to which Dutch economy will be able to maintain and increase its position as an exporter and trader in world economy.

Norway by Per M .

Hansson*

E C O N O M I C ENVIRONMENT

Nature of the Economy National Income (adjusted to reflect changes in price level).—The National Product has risen steadily since W o r l d W a r Π. The table below gives the Gross National Product in fixed 1954 prices:

Year Million kr. Million $

1948

1950

1952

1954

1955

1956*

I957f

20,059

21,641

22,966

24,527 3,430

25,293 3,537

26,290

27,300

3,677

3,818

4.036$ * Preliminary.

3,° 2 7§ f Forecast.

3,212

$ $ = kr. 4.97.

§ $ = kr. 7.15.

Distribution of Income Among Economic Groups.—Expressed

in current prices the

Gross National Product for 1956 was 28,842 million kr. ( $4,034 million), depreciation accounted for 5,143 million kr. ( $719 million) leaving a net domestic produce o f 23,699 million kr. ($3,315 million). After adjustment for taxes and subsidies, the factor income comes out at 21,620 million kr. ( $3,024 million), distributed as follows:

Manufacturing industries Agriculture Forestry Fishing and whale catching Construction Mining Sea Transport Trading Communications Public administration and defense Banking, insurance, and social benefits Other

1948

1956

32.0%

28.0%

8-3% 4-0%

7-5% 4-0%

4-4% 8-4%

2.7%

1.0%

7-0%

i.9% 9-6%

II.S%

12.4%

4-4% 3-2%

4.7% 4.7%

2.0%

2.5%

13.8%

14.5%

* Managing Director, Storebrand Insurance Company, Ltd., Oslo.

557

7-5%

558

World Insurance Trends

The factor income of 21,620 million kr. ( $3,024) is made up by wages at 12,140 million kr. ($1,698 million), interest income by individuals accounts for 275 million kr. ($38 million), farmers, forest owners and fishers with a fishing vessel of their own had an income of 2,333 million kr. ( $326 million), and other individually earned and unearned income amounts to 6,246 million kr. ($874 million). O f 1,400,000 taxpayers in 1953 approximately $70,000 (42 per cent had an assessed income of kr.6,000 ( $840) or below. Another 570,000, approximately, had an assessed income between kr.6,000 and kr.12,000 ($1,680). Only 14,000 (1 per cent) taxpayers were assessed for an income in excess of kr.30,000 ( $4,195) in 1953. Since 1953 it is safe to assume that wages and salaries have been augmented by almost 25 per cent. Gross National Product.—The Gross National Product amounted in 1956 to 28,842 million kr. ($4,034 million). It was broken down as follows:

1948

1956

Million Million* % $ kr.

Million Million-}· % % kr.

Net domestic product Depreciation

11,756 2,336

2,365 470

83 23,699 17 5.143

3.315 719

82 18

Gross National Product Gross fixed asset formation Production assets Stocks Public consumption^: Civilian Military Private consumption Export surplus Exports Imports

14,092 5.099 4,621 478 1,338 1,031 307 8,396 -741 4.430 5.171

2,835 1,026 930 96 269 207 62 1,690 -150 890 1,040

100 28,842 36 9,9i8 9,418 33 500 3 9 2,990 7 2,029 2 961 60 15,954 — 20 -5 31 12,000 36 12,020

4.034 1,387 1,317 70 418 284 134 2,231 — 20 1,678 1,681

100 35 33 2 10 7 3 55

Gross National Product

14,092

2,835

100

4,034

100

* $ = k r . 4.97.

·)• $ = k r . 7.15.

28,842

—

42 42

φ State and municipal.

Population Growth.—The population in May, 1957 is approximately 3,470,000 after an increase of about 33,000 yearly over the last ten years. One third of the population lives in towns and two thirds in rural districts.

Norway

559

In 1801 the population was 883,000, in 1865 1,702,000, in 1900—2,000,000, and in 1930 it was 2,814,000. Short and Long-Range Stability of the Currency

Indices

Wholesale prices (1952 = 100)

July Λ 1914 / 1930 1938 1940 1945 I9JO

1955 1956 February 1957

Cost of living (1949 = 100)

$-rate

¿-rate

37 59 63 75 98 105

3-73 3-74 4.09 4.40

143 148

4-97 7-15 7-15 7-15

18.47 18.17 19.90 17.41 20.00 20.00 20.00 20.00

151

7-15

20.00

—

33 36 48 64 76 103 108 III

Role of Insurance in the International Balance of Payments

Million kroner

Receipts (non-life commissions received) Less: Premiums paid less claims received, on account of insurance of Norwegian ships Insurance on imports Other (net) Net defiat

Million $ equivalent

1954

1955

1956

1954

1955

1956

4

4

4

0.6

0.6

0.6

76 36 56

85 38 27

70 42 12

10.6 5.0 7.8

11.9

9.8

5-3 3-8

5-9 1-7

164

146

120

22.8

20.4

16.8

Capability of the Banking System The Norwegian banking system affords approximately the same types of services as those available in other industrialized countries. All commercial banks are privately owned. The savings banks are "self-owned." The government owns

j6o

World Insurance Trends

eight special banks, o f which one aims at giving medium term loans, t w o are for home financing, one for the fishing industry, and one for students. T h e insurance companies maintain current accounts in one or more banks, and also keep regular accounts here in foreign currencies. Many companies deposit their securities with the banks. Most o f the bigger banks can execute purchases and sales o f securities on behalf o f their clients (like the private brokers do). Internal payments are effected through the banks, by check, letter, or wire, and external payments are likewise made for those companies w h o do not keep a banking account o f their o w n in other countries. A n y purchase or sale o f foreign currencies is transacted through the banks, upon approval by the Bank o f N o r w a y in case o f purchase. Encashment o f premiums through the banks is a regular feature. Availability of Risk Capital Most existing Norwegian companies are financially self-supporting to the extent that any ordinary financial needs are fairly easily covered through mortgage borrowing or overdraft facilities in a bank. N e w ships are to a great extent financed by loans in other countries. This applies specially to tankers and other special ships for which a license for building abroad is only granted when the full construction costs are financed by foreign loans. T h e much tighter capital market in the last year tends however to make the companies slightly more interested in n e w outside risk capital. But there are great tax obstacles to increasing the share capital, as dividends paid out o f taxed earnings while interest is a tax-deductible item. The Norwegian stock market is characterized by lack o f material. A n y n e w offering o f shares in solid enterprises w o u l d be well received. W h e n issued they are usually offered at par, irrespective o f present price, and with a preference for old shareholders to subscribe. Increases o f the share capital in life insurance companies must be approved by the authorities. For banks a similar approval is required. A l l other companies are free to increase their share capital. Dividends, however, are limited by law. The stock prices are high compared to dividends. T h e return on good insurance shares is between 3.3 per cent and 4.2 per cent. G o o d industrial shares yield approximately 3.3 to 4 per cent and g o o d shipping shares offer from 1.5 to 3.5 per cent. Today it would not constitute any problem for the insurance industry to obtain new risk capital in any reasonable amounts. The total amount o f n e w share capital issued in all industries in 1956 was 198 million kr. or $28 million, and dealings in existing shares through brokers aggregated only 143 million kr. or $20 million for the year 1956.

Norway

561

Investment Outlets for Private Insurance Funds The rules regulating the investment of funds in life and non-life companies is mentioned below. Approximately 50 per cent of the aggregate construction costs of 1,200 million kr. or $170 million yearly for approximately 25,000 new homes (i.e., 2.2 rooms per 100 inhabitants) is financed through State bank loans for repayment over 70-100 years. The government is anxious that the life companies should appropriate a major part of available funds to long-term bonds (15-40 years) issued by the State banks or direct by the Treasury. The interest yield on such bonds today is approximately 4 p e r cent per annum. New private or municipal bearer bond issues may only be floated with the approval of the treasury and then on conditions in line with the official policy. Since the savings banks as well as the life insurance companies have committed themselves to fairly heavy purchases of State and State guaranteed bonds, the bond market and the interest level is under pretty tight control. The noncommitted part of the life companies' funds will regularly be invested in mortgage loans in dwellings, in corporate bonds (mainly financing water power construction) and to a smaller degree in shipping and industry. The purchase of shares and real estate by life companies is negligible, mainly because only free funds (other than technical reserves) may be so invested. The non-life companies may invest in any ordinary security, Norwegian or foreign, bond or stock, or in real estate, always provided the total investments constitute a balanced portfolio. Public Attitudes Toward Insurance There are today in force about one million life policies.

1938*

1948t

I950Í

1954

1955

1,000

80,793

208,800

216,530

331,654

351,090

$1,000

19.754

42,012

30,283

46,385

49,103

Kr. 1,000

52,195

152,235

155,793

280,188

265,042

$1,000

12,762

30,630

21,790

39,132

37,068

153,000

363,000

234,000

436,000

549,000

37,408

73,038

32,727

60,980

76,783

Year Premium kr.

Increase in reserve against insurance risks

Increase in banks' savings accounts Kr. 1,000 $1,000

* $ = k r . 4.09.

t$=kr-4-97-

t $ = k r . 7.1J.

5 62

World Insurance Trends

The public attitude toward life insurance is influenced by the fact that capital premiums up to kr. 900 ($126) yearly is tax deductible. For pension policies premiums up to 25 per cent of assessed income of the policyholder in any year is tax deductible, limited to a full pension of kr. 16,416 ( $2,295)

a

year

at

the age of

sixty-seven, scaled down for premium-paying periods below thirty years. Life insurance premiums amount today to approximately 1.3 per cent of national income. Health insurance is compulsory for everybody, and is administered by the government. Very few, if any, properties of any value are today uninsured against fire risks, but full protection is not always secured. Theft and burglary insurance are not that common and other miscellaneous branches are fairly unusual. Motorcar liability is however compulsory, and the guarantee amounts may this year be substantially increased. Ships usually have hull insurance and also protection and indemnity insurance. Aggregate non-life premiums paid to Norwegian carriers in 1955 were 443 million kr. ($62 million), of which marine accounted for 49 per cent, fire 24 per cent, motor 17 per cent, and miscellaneous 1 per cent. Total premiums approximate 1.6 per cent of national income. Total life and non-life premiums aggregate just under 3 per cent o f national income.

POLITICAL ENVIRONMENT

State of Development

of the Legal Code Governing

Commercial

Transactions

B y means of an Act passed in 1953, a far-reaching control and regulation of prices, dividends, and restrictive practices has been effected. The purpose o f this Act is far-reaching, namely to serve as a link in the effort to ensure full employment, the efficient utilization of production potentialities, counteract market crises, and ensure a reasonable distribution of the national income. In order to attain this object the authorities have received comprehensive powers from the Price Directorate which aim at counteracting prices, profits, and terms of business which appear unreasonable, preventing the payment of unwarrantably high dividends and safeguarding against irregularities in sales or competition and against measures to control competition which are unfair or to the detriment of the pubhe's interests. The Act embraces business enterprises of every kind irrespective of the type o f goods, services, or rights which the enterprise provides and irrespective of whether it is a private enterprise or is owned by the State or local authorities. The control of competition-regulating associations and major enterprises is primarily effected by means of compulsory notification and registration, but the price authorities have far-reaching powers to alter, abolish, direct, prohibit, and

Norway

563

dissolve competition-regulating associations if it is found that these are apt to have a harmful effect on production, sales, or other business practices in this realm, or that the provisions otherwise must be regarded as being unfair or detrimental to public interests. In accordance with the Price Control Act the authorities are empowered to effect a comprehensive preliminary regulation of prices and a complete subsequen price control. The preliminary regulation of prices by the Price Directorate has partly been discontinued, but the authority to effect subsequent price control is extensively used. In conformity with the Price Control Act business undertakings can be ordered to pay levies to be used for the purpose of regulating prices and costs, not only within such undertakings' own sphere of activity but for measures in furtherance of general price regulation purposes. The Act contains provisions governing the limitation or regulation of dividends in companies with limited liability. The main rule is that a joint stock company may not distribute a higher annual dividend than that percentage of the share capital at the beginning of the financial year which the Storting approves each year. Certain exceptions are made to this rule, so that it is not so strict in practice. In addition the Act contains provisions which give the price authorities farreaching regulating powers, amongst other things, in respect of the distribution of production and sales in order to prevent the prejudicing of individual consumers or districts. When these regulations were introduced in 1953, they aroused considerable opposition. It has been found, however, that the regulations have not been practiced as widely as the Act itself permits. Governmental Activity in the Area of Insurance General Regulation of Private Insurance.—The insurance business in Norway is governed by the provisions of two statutes: The Insurance Companies' Act of July 9, 1 9 1 1 , according to which the insurance business may be carried on by joint stock companies and mutual companies or by institutions guaranteed by or under the direction of the state or the municipalities ; and The Insurance Agreements Act of June 6, 1930, which deals with the rights and obligations as between insurance companies and the insured. Public control of insurance business is exercised by the State Supervisory Board for the Insurance Companies (Forsikringsrâdet), which supervises commercial insurance companies, at the moment fourteen Norwegian life insurance companies, 1 5 7 Norwegian non-life insurance companies, and fifty-seven foreign non-life insurance companies. Forsikringsrâdet does not supervise private pension schemes and funds which are subject to the control of the Ministry of Social Welfare. Some minor, local, mutual fire insurance associations, mutual life stock insurance

564

World Insurance Trends

companies, or mutual marine insurance companies operating on a small scale in certain localities are supervised b y other ministries. Supervision o f life insurance companies is particularly strict. T h e y have to furnish v e r y considerable detailed information concerning their by-laws, the types o f insurance in which they intend to operate, the terms of insurance which they propose to apply, and the basis to be used for calculation o f premiums. Careful investigation is made as to whether all this is in accordance with the interests o f the policyholders. Further the supervision is exercised partly through comprehensive and detailed accounting reports, and special attention is given to the capital which represents the savings o f policyholders. Investments are chiefly limited to : (1) N o r w e g i a n State and State-guaranteed bonds and municipal bonds as well as other securities approved b y the Supervisory Board ; (2) Deposits in N o r w e g i a n banks and savings banks; (3) M o r t g a g e loans in real property ; (4) Loans to policyholders. T h e supervision o f the non-life insurance companies consists mainly o f inspection o f the accounts. Foreign insurance companies must have a license and be represented by a general agent. Such companies have to deposit certain amounts for each of the branches the company is going to run in N o r w a y . Restrictions, if any, on Flow

of Insurance across National

Boundaries.—Specific

regulations in this respect have been issued by Norges B a n k by virtue of the L a w relating to Foreign Exchange o f J u l y 14, 1950. In practice there are no restrictions to the free transfer of the currency required f o r taking over insurances, settling claims and reinsurance contracts.

Norwegian

citizens w h o desire to effect insurances abroad, however, must have a special currency license f o r the transfer o f the premium. Government

Compulsion

of Insurance.—The

M o t o r Vehicle Act o f 1926 leads

indirecdy to compulsory liability insurance f o r owners of motor vehicles. B e f o r e the owner o f a motor vehicle gets his license, he has to give a guarantee of 60,000 kr. to the authorities (max. 20,000 kr. f o r each person injured and max. 10,000 kr. for other damage). In practice this has led up to the procedure that the private insurance company, where the owner o f the motor vehicle has signed his liability insurance, gives the required security to the authorities. Governmental

Participation in Insurance.—The

N o r w e g i a n system includes the

following social insurance plan: Health Insurance is a short-term scheme established mainly for the purpose o f providing medical treatment and support in cash for a limited period o f disability. T h e scheme is compulsory f o r the entire population. T h e health insurance scheme

Norway

565

covers, generally speaking, all kinds of illness and injury irrespective of cause (or origin). The premium under the health insurance scheme is not graduated according to risk. The benefits are mainly: medical treatment, hospital care, maternity benefits, physiotherapy, sick allowance, breadwinners' supplements, family allowance, confinement allowance, transportation allowance, and funeral allowance. The Accident Insurance Program for Industrial Workers involves much more than factories. Mine workers are included, employees in building trades (including building of boats, roads, bridges, public utilities, and so forth), all who use explosives, forest and lumber workers, harbor hands, and all types of land transport. The basic requirement is that the economic activity use factory principles, or mechanical or steam power. The Accident Insurance Program for Fishermen includes persons with legal residence in Norway. All those gainfully employed in salt-water fishing, all who earn their living wholly or in part from small boats on lakes and rivers, as well as along the coast (including lifeboats, pilot vessels, and pleasure craft), are compulsory members of this plan. The Accident Insurance Program for Seamen embraces all employees on Norwegian ships of fifty gross registered tons and over, and passenger boats above four tons. The captain of the vessel is always included even if he is whole or part owner. Waiters, stewards, telegraphists, and the like on passenger boats are also protected. Members of whaling expeditions to the Arctic and Antarctic are covered whether their posts are on land or sea. Personnel of aircraft lines are included under this law as well. The Accident Insurance Program for Military Personnel covers both officers and enlisted men who suffer permanent injury or death during peacetime military service. The benefits of these four accident plans are mainly free medical treatment as long as needed for the injury or illness caused by accident as defined under the different laws, allowances to replace loss of income, and family support while hospitalized. Disablement annuities in case of permanent disablement based on the degree of disability, size of earnings and family responsibilities, are also provided. Old-Age Pension.—All Norwegian citizens are entitled to an old-age pension after reaching the age of seventy, provided that throughout the last five years before they apply for it, they have lived in Norway, served on a Norwegian ship, or been an employee of the Norwegian government abroad. Refugees settled in Norway are given the same rights as citizens when they fulfill the other conditions. Citizens of Denmark, Finland, Sweden, and Iceland have the same old-age pension rights as native Norwegians, provided again that they have lived in Norway the last five years before applying. Applicants for the pension must also demonstrate economic need. Those with incomes or property above certain limits (raised 19

566

W o r l d Insurance Trends

f r o m time to time along w i t h the size o f pension grants) receive progressively smaller or n o allowances. Unemployment

Insurance.—All

employees w h o are hable to obligatory health

insurance are also considered m e m b e r s o f the u n e m p l o y m e n t insurance p r o g r a m . U n d e r the present l a w , h o w e v e r , there are a n u m b e r o f important exceptions. T h i s insurance provides compensation f o r loss o f earnings w h e n a man is deprived o f his j o b . T h e lost i n c o m e is replaced b y fixed cash benefits per day, as under the health insurance plan. T o help h i m find n e w w o r k , the m e m b e r ' s insurance also m a y grant financial assistance for travel, r e m o v a l to the n e w location, and in certain cases retraining in another v o c a t i o n or higher training in the same one. In addition to the a b o v e social insurance schemes there are other plans o f insurance such as: Family Allowances.—Everyone

supporting children is entitled to this f a m i l y

assistance, regardless o f i n c o m e , p r o p e r t y o w n e d , or occupation. E x c e p t under certain conditions, the first child receives n o grant, but each subsequent child receives annual support u p to the age o f 16. W e have a f e w pension plans for special groups: pension insurance for seamen, pension insurance f o r forest workers, pension insurance for state employees, and retirement insurance for g o v e r n m e n t w o r k e r s .

SOCIAL ENVIRONMENT

Population

Characteristics

B e l o w are given the main groups o f the population in 1955 w i t h the correspondi n g percentage for 1950 in brackets. A g r i c u l t u r e and forest accounted for 20.6 per cent o f the population in 1955 (25.3 per cent in 1950), fishing and catching 4 per cent (4 per cent), industry 25.6 per cent (24 per cent), construction and building 8.5 per cent (8.1 per cent), retail trade 10.4 per cent (10.2 per cent), sea transport 3.9 per cent (3.6 per cent), public administration and defense 5.5 per cent (4.9 per cent), services and other 12.9 per cent (13.1 per cent). The

marriage rate for single persons has decreased f r o m nine

marriages

contracted per 1,000 inhabitants in the years 1946 to 1950 to 7.2 today. T h e average age at marriage has been relatively unchanged o v e r the last t w e n t y years, n a m e l y , 29-30 years for m e n and about 26 years for w o m e n . In the year 1955 the birth-rate was 20.1 in rural districts and 15.2 in urban districts per 1,000 inhabitants. T h e total average shows 18.5 per cent in birth-rate. It is still higher than in the period before the last w a r but l o w e r than in the years 1946-50 w h e n the birth-rate was 20.6. O u t o f 1,000 N o r w e g i a n children born in 1955 y o u w i l l find that 371 w e r e the first child, 314 the second child, 168 the third child, 79 the fourth child, 36 the fifth child, and 32 c a m e in families w h e r e there w e r e five or m o r e children. A total o f 63,552

Norway

567

children were bom in 1955. In the same year 29,099 persons died, producing a death rate of 8.5 per 1,000 inhabitants. Familial and Religious Attitudes Toward Insurance The consciousness of responsibility is highly developed throughout the population, which of course also benefits the insurance industry in general. A previous tendency among certain groups of religious people to refuse insurance has vanished long ago. The average amount of the life insurance policies in force today is 1.750 kr. per inhabitant ( $245), but new policies written last year show an average amount of 7,000 kr. ($1,000). Level of Education A law requiring attendance at primary school was enacted in 1739, but only since 1850 has it been enforced. Today nearly 100 per cent of the Norwegian population have completed a primary school of seven years' length. Virtually all schools for children in the age of 7 to 14 years are owned and run by the government or by local authorities. The primary school is free of charge and compulsory for seven years. It is further aimed at an extension to nine years school (to 15 and 16 years of age) for all those who do not care for education beyond primary school. In the school year 1 9 5 1 - 5 2 337,420 children attended the official primary school, 2,083 were educated outside the ordinary schools, 833 children attended special schools, and 375 in the school age were unfit for ordinary education. The primary school employed 12,159 teachers—male and female. O f these 3,530 were employed by the schools in the towns. For further theoretical education there is the secondary school of three years' length, followed by another two years for those who want matriculation degree. In the school year 1 9 5 1 - 5 2 , 38,319 students attended these secondary grammar schools, out of which 6,800 completed the lower part and another 3,623 passed the matriculation examination. The secondary and higher schools are mainly financed by the government and by local authorities. Virtually all the 2,500 teachers in these schools are hired by the government. The students pay a small yearly fee. The lessons given in the universities are free of charge. The capacity of the universities and high schools is limited, and in some branches only students with distinction are permitted. There are two universities in Norway (in Oslo and Bergen), a technical high school in Trondheim and an agricultural high school near Oslo, besides special high schools for commerce, dentistry, and for veterinary science. In 1955 a total of 1,100 students took their final degree from these schools. In addition there are numerous special and technical schools.

568

W o r l d Insurance Trends GROWTH POTENTIAL

Private insurance will in the future presumably mainly grow in accordancc with the augmentation of the population, in harmony with the steady rise in real wages; it will follow the increasing construction of new industrial capacity and greatly expanding merchant fleet; and it may gain some hull insurance which today is to a not unimportant extent covered abroad. The growth potential is good, which can readily be seen from the fact that about 30 per cent of the national income is devoted to fixed asset formation.

Pakistan by Κ. F. Haider*

GENERAL ECONOMIC BACKGROUND

Pakistan is slightly more than one eighth the size of the continental United States of America. She has 364,000 square miles as compared with 3,027,000 square miles in U.S.A. The census of 1951 showed roughly 76 million people in Pakistan, about half of the population of the U.S.A. The population of the area which now forms Pakistan has undergone a steady rise during the last fifty yean. The 1951 census of Pakistan shows an increase over the census of 1901 for the same areas of approximately 66.7 per cent or an average annual increase of 1.3 per cent. The rate of increase has been greater during the last twenty years and the average rate per annum during 1931 to 1951 was 1.25 per cent. At present the rate of growth is 1.4 per cent per annum. The mid-year population estimates for the year 1956 were 83.6 million. If this rate were to continue steadily the population would reach about 90 million by 1961 and go up to 100 million by about 1968. The percentage of literacy in Pakistan is rather low. Of the total population, only 19 per cent are literate, of which 32 per cent have passed primary school, 16 per cent secondary school, and only 8 per cent have had a college education. In a country where educational facilities have been limited and where the population is mainly rural, these low figures are not surprising. Since the establishment of Pakistan, however, great stress is being laid on increasing educational facilities at all levels and the number of educational institutions is being increased rapidly. Pakistan has a predominantly agrarian economy. Nearly 80 per cent of our population—directly or indirectly—are engaged in the cultivation of land. The rapid increase in population which has been exerting great pressure on the available food resources and the shortage of water have frequently been responsible for food difficulties during the past years. The agricultural nature of the economy has made it extremely vulnerable to external economic forces. For its foreign exchange earnings, the country depends mainly on two items—jute and cotton—and any change in the conditions of their marketability exercises far-reaching effects on the balance of payments, the * President, The Insurance Association of Pakistan. 569

570

World Insurance Trends

central governments' financial budget and other sectors of the economy. Adverse changes in terms of trade sharply affect not only the real income but also the capacity to sustain the rate of economic growth. Apart from the basic developments, such as the rehabilitation and improvement of the railroads, extension of port facilities, road construction, irrigation and power generation, the government has also undertaken the development of certain largescale industries, in which private capital was not forthcoming in requisite measure in the initial stages. Such industries include cotton textiles, jute goods, paper, fertilizers, sugar, and chemicals. It has, however, been the policy to transfer these industries to private ownership as and when they have overcome the initial difficulties. Investment in the private sector has been directed mainly to textiles, and the production of other consumer goods such as tobacco, edible oils, biscuits, soap, plastic goods, and pharmaceuticals. The development efforts of the past years have to some extent succeeded in transforming the economy from a purely agricultural to a semi-industrialized stage. This structural change reflects itself in the national income accounts of the country where the component items such as manufacturing, mining, banking, insurance, transport, and communications have been showing a rapid increase throughout the past years. The percentage contribution of these items to the total national income is as yet rather small but the absolute income originating in these sectors has gone up by about 75 per cent during the last seven years. In the field of public finance, economic development has led to a decline in the relative importance of indirect taxes, such as import and export duties, and more stable and expansive sources, such as income and corporation taxes, are becoming progressively more significant. The pace of development in the country has necessarily been limited by the available resources for that purpose. The development expenditure incurred by the central and provincial governments stood at $ 1 6 0 million in 1955-56 as compared to only $ 1 9 million in 1948-49. In spite of the sizable capital outlays both in private and public sectors, the country is as yet economically underdeveloped and the per capita income of $50 is among the lowest in the world. Again, the pace of economic development is not commensurate with the rate of growth of population, which is estimated to increase at a rate of 1.4 per cent per annum. The increasing population has been exerting a great pressure on Pakistan food resources. The per capita food production and the per capita acreage under good crops has not kept pace with the increasing population and there is a great need for improving the existing delicate balance in population and food resources. Since its very birth, Pakistan has had to face a number of difficult economic problems. The rehabilitation of seven million destitute refugees w h o migrated f r o m India to Pakistan at the time of Partition put a considerable strain on her meager economic resources. She had also to build up an administrative machinery

Pakistan

571

almost from scratch and to reorganize her defense forces on a modern pattern. In addition, she had to rehabilitate and reorientate her financial and economic structure to ensure stability and progress of the new nation. At the moment, the most important problem which requires all our resources is to increase the supplies of food to maintain the present standards of living and to provide a stock of foodstuffs against future unforeseen circumstances. T o meet this challenge, w e have intensified our efforts to produce food enough to meet the present requirements. The use of fertilizers, new and intensive methods of cultivation, and increased irrigation facilities are expected to bring about the desired results in this direction. A beginning has already been made to extend the agricultural advisory and extension services and the results appear to be encouraging.

INSURANCE OPERATIONS

There are eighty six insurance companies operating in Pakistan. Out of these twelve are Pakistani, twenty-one Indian, thirty-three British, four American, and the remaining sixteen are incorporated in European and Commonwealth countries. Seven Pakistani and seventy foreign insurance companies are doing all classes o f insurance business in Pakistan. The total premium in all branches of insurance, except life, is estimated at $10 million and only one third o f this business is placed with the national companies. The Pakistani insurance companies are able to handle a much larger volume o f business at a lower rate o f expense and will become very big institutions if the foreign companies operating in Pakistan offer wholehearted cooperation. The national companies in underdeveloped countries require very careful nursing. They cannot compete against international insurance companies with vast resources. America has helped in the development o f backward areas through various aids. This financial assistance cannot continue indefinitely. The American insurance companies should come forward and help in the development of insurance in the underdeveloped countries. T o begin with, they may assist the national companies by taking their excess business on facultative or automatic reinsurance basis and offer them reciprocation for such business. The whole pattern of insurance business in underdeveloped countries should change. The present conditions do not allow the national companies a fair chance to develop. The pattern of development should be in the true insurance spirit. The local risks should be left to the national companies and only their surpluses reinsured through treaties throughout the world. The American and European insurance companies should come forward and assist in the management and underwriting of business by participation in the share capital or by offering very substantial treaty interest. American insurance companies have not ventured out, as they have very big business in the Americas. Some of the enterprising brokerage

572

World Insurance Trends

firms, however, are operating in backward countries. This, I submit, is not the correct way of helping underdeveloped countries. Insurance is a service and I humbly would request the big insurance companies in the world to go to underdeveloped countries in the spirit of service. All these countries are very short of foreign exchange and therefore every effort should be made to help to conserve their foreign exchange in order to enable them to import capital goods for development of their respective countries. They can save foreign exchange if insurance is well managed and their surpluses are reinsured on a 100 per cent reciprocation basis. In Pakistan it will save the country in foreign exchange at least $3,000,000.

Paraguay by Antonio Iaffei*

The geographic location of Paraguay, an inland country with a navigable river which flows into the Atlantic Ocean, has made possible the development o f an international trade which has become the main source of its economic strength. Its principal exports are cotton, lumber, hides, and tobacco. Since Paraguay has just started to industrialize, its imports are composed of machinery, tractors and farming tools. The growth of its international trade during the last ten years can be observed in Table I. Limiting ourselves to the two sources most intimately related to this study, those related to international trade (export and import) and banking, insurance and capitalization, w e observe that their proportion to the total National Income, is as can be appreciated from Table 2. The proportional income of each economic group is expounded in Table 3. The portion o f National Income consumed by government expenses in relation to that corresponding to the population (consumers), is shown in Table 4. The fluctuation of the national monetary unit in relation to the dollar can be appreciated from the following table. Date

December March January August March

18, 3, 1, 19, I,

1946 1951 1954 1954 1956

Each dollar was quoted in Guaraníes without taking into account the alterations due to taxes and subsidies U.S. $ ι I ι ,, I „ ι

Gs. „ „ „ „

3.09 6.00 15.00 21.00 60.00

Comment

Quotation of the Official Market Exchanges

Bank credit during the last decade amounted to the following sums : Year 1945 (only credit extended by the Official Bank) Year 1950 (same as above)

Gs. 9,380,000 Gs. 56,886,000

Year 1955 (cover credit extended by all banks)

Gs. 2,821,213,000

* Manager, Guarani, S.A., Compañía Paraguaya de Seguros. Translation by Manuel Orlando Diaz, Fellow, S. S. Huebner Foundation for Insurance Education, University of Pennsylvania, and Assistant Professor of Finance (Insurance), University of Puerto Rico. 573

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Spain

625

Public Understanding of Insurance A l t h o u g h there h a v e been Spanish sociologists w h o have defended the thesis that the general public should be extended a certain understanding o f insurance (the most outstanding f i g u r e in this effort w a s the celebrated D o n A l v a r o

Lopez

N u n e z , w h o published in 1913 a small b o o k called Elementary Lessons in Welfare, and later o n other w o r k s ) this effort has not f o u n d support and consequently there is n o t an adequate understanding o f insurance a m o n g the masses. The only insurance studies that exist in Spain are strictly professional ones. The National Syndicate of Insurance has professional schools in both Madrid and Barcelona, but these are exclusively for the preparation of insurance employees. In the year 1915 a program of studies for preparing actuaries was begun. The classes were held in the School of Advanced Commerce of Madrid in the Center for Graduate Studies, although not included in the University. In Spain there are other schools for graduate studies such as the various specialized schools of engineering which, although they fall under the Ministry of National Education, are not included in the University. In the year 1942 the School of Political and Economic Sciences was created to give greater attention to the concentrated study of sciences of this type. B y virtue of a law of the year 1953 the Schools of Graduate Commercial Studies were abolished and their activities were incorporated into the just mentioned school which continues to operate with the name of "School of Political, Economic and Commercial Sciences." In this lias also been included such studies as were made in the School for Actuaries, since such studies are part of the specialties of the newer school. The courses that compose this specific specialty are, after four years of study covering political and economic science: general theory of insurance, actuarial statistics, mathematics of finance, private insurance law, social insurance, mathematical theory of insurance and the insuring enterprise (finance, organization, administration and accounting). Such studies on a permanent basis have been established only in Madrid, and it is to be supposed that in the future they will continue only in the university of this capital.

Sweden by Bertil af Jochnick *

ECONOMIC ENVIRONMENT

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663

Venezuela

The detailed production figures corresponding to the last six years and the percentagewise fluctuations in relation to the previous year are given in Table 1. In Table 2 are classified the total premium payments until the year 1955. In this last year of total premium payments of Bs. 167,360,000, life insurance is represented by a total of Bs.62.500,000 in premiums, and fire insurance by Bs.29,417,000. The marine line is the smallest with Bs.9,877,000, because the greater part of imported goods are still covered by insurance policies issued in foreign countries. This last circumstance may change during 1957 due to the new provisions permitting as a deduction, for income tax purposes only, of premiums paid to companies licensed to do business (whether domestic or admitted) in the country. This constant expansion of the several lines is due, of course, to the level and distribution of income caused by the economic development of the country, and to other factors of monetary flow and change in the customs of the people. The average rate of growth within these branches is 25.46 per cent. In the general insurance branches it is 30.53 cent and in life 21.58 per cent. Sums

Insured

T o an increment in production in the form indicated in the previous paragraph corresponds an increment of the insured capitals for the period 1950-56 of 244 per cent. In the market there is a tendency toward lower premiums because of competition between firms. This tendency is also a result in part of the experience of the insurance companies in the selection of risks, with respect to which, when special risks are involved in satisfaction of the requirement of Article 23 of the Law, the approval of rates must be obtained in advance from the Ministry of Development. Taking 1950 as the base year, in 1956 the capitals covered were three times larger TABLE 3 Insured Capitals (Thousand bolívares)

Years

Capital

Index number

1950

7.373.978

100

I9JI

8,864493

120

1952

11,184,862

152

1953 1954

13.594^99 IS.839.939

215

1955

18,360,354

249

1956*

26,023,882

353

184

* Data for 1956 subject to correction.

664

W o r l d Insurance Trends

than for the year 1950, reaching the amount of Bs.26,023,882, a sum that almost triples the national income estimate for 1953 (Bs.9,893,000) and is 62 per cent higher than foreign investments in Venezuela for December 31, 1953, which reached the amount of Bs. 10,950.09 millions. Loss Ratios

It can be seen in Table 4 that the loss ratio during 1956 was 30 per cent of gross premiums. There is a tendency in the market for loss ratios to increase, notwithstanding the greater care of the insurance companies in the selection of risks. This increase is attributed to the strong competition existing in the market and, consequently, the desire of insurance companies to get production in any way whatsoever. TABLE 4

Loss Ratio ('Thousand bolívares)

Year

Premiums Losses

45.570 48.750

16,158

1951 1952

61,931

24,095

1953 1954 1955

77,780

25,167

98,498 118,349

1956*

143,015

32.378 49.746 42,305

1950

Foreign

Domestic

17,618

Loss

Premiums Losses

Totals Loss

Premiums Losses

Loss

Ratio

Ratio

Ratio

(%)

(%)

(%)

35 36 39 32 33

33,962

8,786

26

79,532

24,944

34,027

11,964

29,582

41,186

15,669

103,117

46,654

16,364

35 38 35 43 43 32

82,597

39.764 41.531 51.391

31 36 39 33 36

167,360

70,585

42

202,304

61,496

30

44,038

19,013

42

49,on

20,838

26

59.289

19.191

124,440 142,536

* Data for 1956 subject to correction.

Investments

Investments made in the country by insurance companies total Bs.466,602,000, this amount representing the backing of the commitments undertaken in accordance with Article 17 of the Law. Of the total investment, Bs.287,081,000 is represented by domestic companies as against Bs.179,521,000 by foreign companies. Similarly the total of legal reserves and reserves for unpaid losses and other commitments (liabilities) of the insurance companies for the benefit of assureds during 1956 reached the sum of Bs.312,459,000 with Bs. 172,692,000 being held by

665

Venezuela TABLE 5 Cash and Investments ( Thousands bolívares)

Domestic

Year

Foreign

Total

Bs.

Index

Bs.

Index

Bs.

Index

96,055 111,859

100

63.457

100

159,512

100

1951

116

116

185,626

116

1952

129,532

73.767 87,102

216,634

136

1953

159,148

137 158

162

1954

259,149 310,275 371,012

233

466,602

293

1950

1955 1956*

135 166

100,001

199.349 227,714

208

110,926

237

143,298

175 226

287,081

299

179,521

282

195

* Data for 1956 subject to correction.

TABLE 6 Coverage Ratio (Thousands bolívares)

Foreign

Domestic

Year Cashf

Insur- R a t i o

and In-

ance

vestments

Com-

(%)

Cashf

All

Insur- R a t i o

Cash "J"

(%)

and In-

ance

vestments

Com-

and In-

ance

vestments

Com-

Insur- R a t i o

mit-

mit-

mit-

ments

ments

ments

(%)

1950

96,055

61,622 156

63,457

63,287 100

159,512

124,909

128

1951

111,859

72,935 ΙΟΙ 86,409 ΙΟΙ

142,680

130

129,532

73,767 87,102

185,626

1952

69,745 160 83,180 156

216,634

169,589

128

1953

159,148

99,886 159 128,260 155

100,001

259,149 310,275

199,840

130

110,926

99,954 IOO 106,824 104

143,298

134,538 107

371,012

235.084 284,843

132

150,305 1 5 2 172,694 166

179,512

139,765 128

466,602

312.459

149

1954

199,349

1955 1956*

227,714 287,081

* Data for 1956 subject to correction.

f Cash and other quick assets.

130

666

World Insurance Trends

domestic as against Bs.139,765,000 by foreign companies. The comparison of the indicated figures for the investments item and for the item of insurance commitments previously specified determines the coverage ratio in conformity with Article 18 of the Law in force. According to Table 6 the coverage index for 1956 has been 1.49 for all the companies or, in other words, for each bolivar of commitments there are assets of 1.49 bolivars. This index has been growing during recent years, a difference appearing between the domestic companies and the foreign ones (national 1.66 and foreign 1.28). This difference has arisen because the national companies have their capitals invested in the country while foreign ones have theirs only partially so. In general, insurance in Venezuela is essentially private, since there is no official Reinsurance Institute, but there seem to be strong tendencies for the organization of a national Reinsurance Company, through the participation of all national companies operating in the market. T o date this initial step is yet to be taken. The companies are grouped in an Insurers Association which coordinates the making of rates and gives its opinion on the special rates submitted in the several committees or branches. This association also coordinates the relationships with the government for all the industry and constitutes an advisory body of the proper authorities in insurance matters.

To the Memory of C. A R T H U R

KULP

Professor of Insurance 1919-57 and Dean 1955-57 Wharton School of Finance and Commerce University of Pennsylvania

D·. Clarence Arthur Kulp, who was Dean of the Wharton School at the time of the International Insurance Conference, passed away August 20, 1957. Therefore, it seems appropriate that there should be reproduced in these Proceedings the resolution presented to Dr. Kulp by the American Association of University Teachers of Insurance on the occasion of the first International Insurance Conference. CITATION from the American Association of University Teachers of Insurance to C. A R T H U R K U L P May 21, 1957 On the occasion of the International Insurance Conference at the University of Pennsylvania the American Association of University Teachers of Insurance wishes to express and permanently record its sincere appreciation for the notable contributions you have made not only to insurance education but to collegiate education for business and governmental administration. A quarter of a century ago you were one of the co-founders of the Insurance Teachers Association and served as its president in 1946-47. Your continuous service to the Association as a participant in its deliberations, as committeeman, and as an officer has been an important factor in its growth and strength. Those who are associated with insurance education believe it is extremely fortunate for the institution of insurance that you chose this field as your specialty. They are fully aware that your wide intellectual interests, talents, and attainments qualify you equally well for professorial status in other areas of academic endeavor. Although your distinguished career has been inseparably interwoven with the welfare of the Wharton School from which you received your first academic 667

668

W o r l d Insurance Trends

degree in 1917 and where you have served as professor, department chairman, director of the graduate division, and now dean of the school, the impact of the stimulating and incisive thinking demonstrated in your research, writing, administrative, and consultative activities knows no such bounds. Y o u r monumental work on casualty insurance has stretched the minds of thousands of students who never have had the pleasure of attending the classes where they could enjoy your scholarly guidance, subtle wit, and revealing candor. The Railroad Retirement Board, the Federal Social Security Administration, the U.S. Department of Labor, the Social Science Research Council, the Casualty Actuarial Society, and numerous other public and professional groups have been the beneficiaries of your rare analytical power to diagnose the key issues in the most difficult problems and your remarkable facility for speedily suggesting sound solutions. The broad scope of your accomplishments, your record of educational leadership, your fine sense of academic values, your respect and tolerance for the rights and viewpoints of others, and your impartial though courageous decisions eminently qualify you for your present post as dean of the oldest collegiate school of business. Our Association is justly proud of your achievements, proud to have you as a member, and deeply grateful for the reflected glory you have shed upon it. CHARLES C . CENTER, P r e s i d e n t KENNETH HERRICK, S e c r e t a r y

APPENDIX Conference Committees

Planning Committee DAN M. MCGILL, Professor of Insurance, Wharton School of Finance and Commerce and Executive Director, S. S. Huebner Foundation, Chairman RALPH H. BLANCHARD, Professor of Insurance, Graduate School of Business, Columbia University JOHN A. DIEMAND, President, Insurance Company of North America Companies E. J. FAULKNER, President, Woodmen Accident Life Company DAVIS W . GREGG, President, American College of Life Underwriters GAYLORD P. HARNWELL, President, University of Pennsylvania VALENTINE HOWELL, Executive Vice President, Prudential Insurance Company of America S. S. HUEBNER, Emeritus Professor of Insurance, University of Pennsylvania; President Emeritus, American College of Life Underwriters HOLGAR J . JOHNSON, President, Institute of Life Insurance NEWELL R . JOHNSON, General Manager, American Mutual Alliance CLYDE M . KAHLER, Professor of Insurance and Chairman of the Insurance Department, Wharton School of Finance and Commerce JAMES S. KEMPER, Chairman of the Board, Lumbermens Mutual Casualty Company RICHARD DER. KIP, Assistant Professor of Insurance and Executive Director of the 75th Anniversary of the Wharton School of Finance and Commerce C . A . KULP, Professor of Insurance and Dean of the Wharton School of Finance and C o mm erce M . ALBERT LINTON, Chairman of the Board, Provident Mutual Life Insurance Company HARRY J . LOMAN, Professor of Insurance, Wharton School of Finance and Commerce ; Dean, American Institute for Property and Liability Underwriters, Inc. ROBERT J. MYERS, Chief Actuary, Social Security Administration JONATHAN E. RHOADS, Provost, University of Pennsylvania LEWIS A . VINCENT, General Manager, National Board of Fire Underwriters WILLIS J. WINN, Associate Professor of Finance and Vice Dean of the Wharton School of Finance and Commerce

Sponsoring Committee CO-CHAIRMEN J O H N A . DIEMAND,

President,

Insurance

Company of North America Companies

M.

ALBERT LINTON,

C h a i r m a n o f the

Board, Provident Mutual Life Insurance Company

MAJ.COM ADAM, President, Penn Mutual Life Insurance Co. CLAWS ADAMS, Executive Vice President and General Counsel, American Life Convention 671

672

Appendix

MANUEL ALONSO DE FLORIDA, Gerente General La Azteca Cía. Mexicana de Seguros, S.A., Mexico, D . F. DON TEODORO AMERLINCK, President, Cia. de Fianzas Lotonal, S.A., Mexico, D.F. PAULLI ANDERSEN, Deputy Manager, Assurance-Compagniet Baltica, Copenhagen, Denmark W . M . ANDERSON, President, North American Life Assurance Company, Toronto, Canada OTTO AROSEMENA GÓMEZ, Gerente, De Compañía Ecuatoriana de Seguros, S.A., Guayaquil, Ecuador EUGENIO ARTOM, President, Associazione Nazionale Fra Le Imprese, Assicuratrici, R o m e , Italy JORGE BANDE, Manager, La Chilena Consolidada and Professor of Insurance and History of Culture, Chile University, Santiago, Chile WALTHER BITTNER, Direktor, Anglo-Elementar Versicherungs-Aktien-Gesellschaft, Vienna, Austria KENNETH E. BLACK, President, The Home Insurance Company S. BRUCE BLACK, Chairman of the Board, Liberty Mutual Insurance Company RALPH BLANCHARD, Professor of Insurance, Columbia University GEORGE W . BOURKE, President Sun Life Assurance Co. of Canada, Montreal, Canada EDISON L. BOWERS, Professor of Economics, The Ohio State University THOMAS A. BRADSHAW, President, Provident Mutual Life Insurance Co. MORGAN B . BRAINARD, Chairman, Aetna Life Affiliated Companies ARTURO BRILLEMBOURG, President, La Venezolana de Seguros, Caracas, Venezuela CARL BRINER, President, "Switzerland" General Insurance Co., Ltd., Zurich, Switzerland GIUSEPPE BUFANO, General Manager, Assicurazioni Generah, R o m e , Italy J . F. BUNFORD, Manager and Actuary, National Provident Institution, London, England W . H . BURHOP, President, Employers Mutual Liability Insurance Co. of Wisconsin M . C . BUTTFIELD, General Manager Australian Mutual Provident Society, Sydney, Australia CHARLES C . CENTER, President, American Association of University Teachers of Insurance ANGELO MARIO CERNE, Managing Director, Companhia Internacional de Seguros and President, Federacäo Nacional das Empresas de Seguros Privados e Capitalizacäo, R i o de Janeiro, Brazil FRANK A. CHRISTENSEN, Chairman of the Board, America Fore Group PAUL F. CLARK, Chairman of the Board, John Hancock Mutual Life Insurance Co. ENRIQUE CORTÉS, Manager, Compania de Seguros Bolivar, Bogota, Colombia JAMES F. CRAFTS, President, Firemen's Fund Insurance Company ROBERT DECHERT, Esq., General Counsel, U.S. Department of Defense BRUNO DE MORI, General Manager, Unione Italiana di Riassicurazione, Rome, Italy PIERRE DEPOID, General Manager, La Prévoyance, Paris, France J . DOYLE DEWITT, President, The Travelers Insurance Companies J . DEWEY DORSETT, General Manager, Association of Casualty and Surety Cos. WILLIAM ELLIOTT, Chairman of the Board, Philadelphia Life Insurance Company FOSTER F. FARRELL, Secretary-Treasurer-Manager, National Fraternal Congress of America E . J . FAULKNER, President, Woodmen Accident and Life Company R . LEIGHTON FOSTER, Q.C., Managing Director, The Canadian Life Ins. Officers Assoc., Toronto, Canada HOVEY T . FREEMAN, President-Treasurer, Manufacturers Mutual Fire Insurance Co.

Sponsoring Committee

673

HANS GERLING, President, Gerling-Konzern, Cologne, Germany E. C. GILL, President, The Canada Life Assurance Company, Toronto, Canada ENRIQUE GODOY SAYAN, President, Godoy-Sayan, Oficina Aseguradora De Cuba, Habana, Cuba ARTHUR C. GOERLICH, Dean, School of Insurance, Insurance Society of New York MARIO GRANAI, Manager, Cia. de Seguros Generales, Guatemala City, Guatemala CARLOS L. GRANDJEAN, Presidente, Compania de Seguros, La Franco Argentina, S.A., Buenos Aires, Argentina WILLIAM D. GRANT, Executive Vice President, Business Men's Assurance Co. of America G. Κ. GREENING, President, The Chartered Insurance Institute, London, England PER M. HANSSON, Managing Director, Storebrand Insurance Company Ltd., Oslo, Norway KENNETH B. HATCH, President, Fire Association of Philadelphia MANNING W . HEARD, Chairman, American Insurance Association J . VICTOR HERD, President, America Fore Insurance Group GEN HIROSE, President, Nippon Life Insurance Company, Osaka, Japan J . W . HOLLEMAN, President-General Manager, The New First Netherlands Insurance Co. Ltd., 's Gravenhage, Holland VALENTINE HOWELL, Executive Vice President, The Prudential Insurance Co. of America S. S. HUEBNER, Emeritus Professor of Insurance, University of Pennsylvania and President Emeritus, American College of Life Underwriters J . C . HULLETT, President, National Board of Fire Underwriters ERWIN HURLIMANN, Chairman, Swiss Reinsurance Company, Zurich, Switzerland HAMPTON Η. IRWIN, Immediate Past President, American Association of University Teachers of Insurance RAÚL JIMÉNEZ, Managing Director, Cia. General de Seguros, S.A., Panama City, Panama BERTIL AT JOCHNICK, President, Trygg Life and Fire Insurance Co., Stockholm, Sweden HOLGAR J . JOHNSON, President, Institute of Life Insurance NEWELL R . JOHNSON, General Manager, American Mutual Alliance DEVEREUX C. JOSEPHS, Chairman of the Board, New York Life Insurance Company GUNNAR KALDERÉN, Deputy General Manager, Skandia Insurance Co., Ltd., Stockholm, Sweden JAMES S. KEMPER, Chairman of the Board, Lumbermens Mutual Casualty Company N . E. KIHLBOM, Past Chairman of the Board, Aequitas Swedish Reinsurance Company, Malmo, Sweden D . E. KILGOUR, General Manager, Great-West Life Assurance Company, Winnipeg, Canada RJCHARD DER. KIP, Executive Director, 75th Anniversary Committee of the Wharton School of Finance and Commerce A . L. KIRKPATRICK, Insurance Manager, Chamber of Commerce of the United States WILLIAM LESLIE, General Manager, National Bureau of Casualty Underwriters LEROY A. LINCOLN, Chairman of the Board, Metropolitan Life Insurance Company MURRAY D. LINCOLN, President, Nationwide Insurance Companies JOHN A. LLOYD, President, The Union Central Life Insurance Company HARRY J . LOMAN, Dean, American Institute for Property and Liability Underwriters, Inc. WILLIAM MACLEAN, President, National Union Insurance Companies

674 E.

Appendix

President, American International Underwriters Corp. NORTON E. MASTERSON, President, Casualty Actuarial Socictv CARL E. M C D O W E L L , Executive Vice President, American Institute of Marine Underwriters F . ALFREDO M E J I A , Manager, La Centro Americana, S.A., San Salvador, El Salvador JACQUES MERLIN, President Directeur Général Du Groupement De Réassurances Maritimes, Paris, France R A Y D. M U R P H Y , Chairman of the Board, The Equitable Life Assurance Society of the U.S. T. A . MURRAY, General Manager, South African Mutual Life Assurance Society, Capetown, South Africa ROBERT MYERS, Chief Actuary, Social Security Administration, U.S. Dept. of Health, Education & Welfare ROBERT R . NEAL, General Manager, Health Insurance Association of America JAMES O . NICHOLS, President, American Foreign Insurance Association SIR STANLEY NORIE-MILLER, Chairman and Managing Director, General Accident, Fire and Life Assurance Corporation Ltd., Perth, Scotland JOHN A. NORTH, President, The Phoenix Insurance Company F . R . NORTON, General Manager, Guardian Assurance Company, Ltd., London, England FREDERIC M. PEIRCE, Managing Director, Life Insurance Agency Management Association EMETERIO R O A , President and General Manager, Reinsurance Company of the Orient, Inc., Manila, Philippines E. A. ROBERTS, President, The Fidelity Mutual Life Insurance Co. LEO M. ROY, Director General, Pan-American de Mexico, Mexico City, Mexico PIERO SACERDOTI, General Manager, Riuione Adriatica di Sicurtà, Milan, Italy LESTER O . SCHRTVER, Managing Director, The National Association of Life Underwriters B . K . SHAH, Managing Director, New India Assurance Company Ltd., Bombay, India BRUCE E. SHEPHERD, Manager, Life Insurance Association of America H. T. SILVERSIDES, General Manager, The Yorkshire Insurance Company, Ltd., York, England H. J. STEWART, President, West Coast Life Insurance Company GEORGE TATTEVIN, President and Director General, Compeigne Generale D'Assurances, Paris, France ROBERT B . TAYLOR, President, National Association of Insurance Commissioners L . A . VINCENT, General Manager, National Board of Fire Underwriters ERNESTO WARNHOLTZ, Vice-President and Managing Director, Union de Seguros, S.A., Mexico City, Mexico HAROLD L . W A Y N E , General Manager, Inland Marine Underwriters Association WALTER Η . W E S T , Jr., President, Towers, Perrin, Forster and Crosby, Inc. L. R . WOODARD, Managing Director, Life Office Management Association CHARLES J. ZIMMERMAN, President, Connecticut Mutual Life Insurance Co. A.

G.

MANTÓN,

Committees

675

Program Committee DAN M. MCGILL, Professor of Insurance, Wharton School of Finance and Commerce and Executive Director, S. S. Huebner Foundation for Insurance Education, Chairman DAVIS W. GREGG, President, American College of Life Underwriters HOLGAR J. JOHNSON, President, Institute of Life Insurance CLYDE M. KAHLER, Professor of Insurance and Chairman of Insurance Department, Wharton School of Finance and Commerce RICHARD DER. KIP, Assistant Professor of Insurance and Executive Director, 75th Anniversary Committee of the Wharton School of Finance and Commerce C. ARTHUR KULP, Professor of Insurance and Dean, Wharton School of Finance and Commerce HARRY J . LOMAN, Professor of Insurance, Wharton School of Finance and Commerce, and Dean, American Institute for Property and Liability Underwriters, Inc. MILTON W. MAYS, Vice-President, America Fore Group WILLIS J . WINN, Associate Professor of Finance and Vice-Dean of the Wharton School of Finance and Commerce

Publicity Committee DONALD T. SHEEHAN, Director, Public Relations, University of Pennsylvania, Chairman ARTHUR C. DANIELS, Vice-President, Institute of Life Insurance DAVIS W . GREGG, President, American College of Life Underwriters FRANK HARRINGTON, Advertising Manager, Insurance Company of North America DAN M. MCGILL, Professor of Insurance, Wharton School of Finance and Commerce and Executive Director, S. S. Huebner Foundation for Insurance Education EDWARD N. ROSA, Assistant to the President, Chamber of Commerce of Greater Philadelphia A. H. THIEMANN, 2nd Vice-President, New York Life Insurance Company. WILLIS J . WINN, Associate Professor of Finance and Vice-Dean of the Wharton School of Finance and Commerce.

Women's Committee M R S . WALTER A . C R A I G , Chairman

M R S . DAVIS W . GREGG

M R S . GEORGE L . AMRHEIN

M R S . GAYLORD P . HARNWELL

M R S . PAUL BLANSHARD

M R S . S . S . HUEBNER

M R S . EDITH CORSON

M R S . RICHARD D E R . K I P

M R S . CONSTANCE DALLAS

M R S . M . ALBERT LINTON

M R S . JOHN A . DIEMAND

MKS. D A N M . MCGILL

M I S S M O N A Κ . FISHER

M R S . GEORGE GORDON MEADE

D R . A N N HANKINS FORD

M R S . W A L T E R SACHS

MISS MADELEINE G L Y N N

M R S . WILLIS J . W I N N

Appendix

676

Delegates to International Insurance Conference FRANCO ACUTIS, General Director, Compagnia Anonima d'Assicurazione di Torino, Turin, Italy MALCOLM ADAM, President, Penn Mutual Life Insurance Company, Philadelphia, Pa. ALBERT C . ADAMS, Vice President, National Association of Life Underwriters, Philadelphia, Pa. JOHN F. ADAMS, Lecturer in Insurance, Wharton School of Finance and Commerce MARCO E . AGURCIA, Gerente General, Aseguradora Hondurena, S.A., Tegucigalpa, Honduras, C.A.

GEORGE F. ALBRIGHT, Assistant to the President, Life Insurance Company of Virginia, Richmond, Virginia E . R . ALEXANDER, Vice President and Treasurer, Sun Life Assurance Company of Canada, Montreal, Quebec, Canada J . FINLAY ALLEN, Vice President and Secretary, Home Life Insurance Company of N e w Y o r k , N e w York, N . Y . (Representing William P. Worthington, President) RICHARD ALT, Director of Research, N e w England Mutual Life Insurance Co., Boston, Massachusetts MANUEL ALONSO DE FLORIDA, General Manager, LaAzteca Cia., Mexicana de Seguros, Mexico, D.F. CARMELINO G. ALVENDIA, Executive Vice President & Treasurer, Reinsurance Co. of the Orient, Inc., Manila, Philippines TEODORO AMERLINCK, President, Cia. de Fianzas, S.A., Mexico City, Mexico PAULLI ANDERSEN, Deputy Manager, Assurance-Compagniet Baltica, Copenhagen, Denmark W . M . ANDERSON, President, North American Life Assurance Co., Toronto, Ontario, Canada DONALD K . ANGELL, Vice President, University of Pennsylvania EUGENIO ARTOM, President, Associazione Nazionale, Fra Le Imprese Assicuratrici, Milano, Italy JAMES L. ATHEARN, Ohio State University, Columbus, Ohio C . HENRY AUSTIN, MANAGER, Insurance Department, Standard Oil Company (Indiana), Chicago, Illinois HAROLD L. BAIRD, President, United Pacific Insurance Company, Tacoma, Washington L. M . BALDWIN, 2nd Vice President, The Travelers Insurance Companies, Hartford, Connecticut JORGE BANDE, Manager, La Chilena Consolidada, Professor of Insurance and History of Culture, Chile University, Santiago, Chile JOHN L. BARINGER, Vice President, Rochdale Insurance Company, Philadelphia, Pa. JAMES E. BARRETT, Asst. Vice President, Mutual of Omaha, Omaha, Nebraska

Delegates to International Insurance Conference

677

EDWARD BART, Vice President, North American Reinsurance Corporation, New York, N.Y.

HECTOR BELLOSO, Manager, Compania Anonima de Seguros "La Nacional" Caracas, Venezuela SRA JOHN BENN, Bart, Chairman, United Kingdom Provident Institution, London, England CLAUDE L. BENN ER, President, Continental American Life Ins. Co., Wilmington, Delaware ADOLPH A. BERLE, Jr., Professor of Corporation Law, Columbia University School of Law, New York J, N.Y. A. W . BERRY, President, U.S. Liability Insurance Co., Philadelphia, Pa. DAVID L. BICKELHAUFT, Huebner Foundation Fellow, University of Pennsylvania JOHN S. BICKLEY, Ohio State University, Columbus, Ohio KENNETH BLACK, Jr., Chairman, Department of Insurance, State College of Business Administration, Atlanta, Georgia PAUL BLANSHARD, Jr., Public Relations Coordinator, University of Pennsylvania; and Publicity Coordinator, International Insurance Conference ROBERTO T. BOAVISTA, Director Gerente, Companhia Boavista de Seguros, Rio de Janeiro, Brazil ROBERT G. BODET, Vice President, Home Insurance Company, New York 8, N.Y. JOSEPH E. BOETTNER, President, Philadelphia Life Insurance Co., Philadelphia, Pa. HONORABLE ALFRED J. BOHLINGER, Former Superintendent of Insurance, New York State HENRY D. BOOTH, Jr., Rochdale Insurance Co., Philadelphia, Pa. EDISON L. BOWERS, Ohio State University, Columbus, Ohio E. SCULLY BRADLEY, Vice Provost, University of Pennsylvania THOMAS A. BRADSHAW, President, Provident Mutual Life Insurance Co., Philadelphia, Pa. ROBERT P. BRADY, Assistant Vice President and Actuary, Republic National Life Insurance Co., Dallas, Texas ROBERTO BRACCO, Chairman, Istituto Nazionale delle Assicurazioni, Roma, Italy JAMES ELTON BRAGG, N e w Y o r k University, N e w Y o r k , N . Y .

CARL BRINER, President, "Switzerland" General Insurance Co., Ltd., Zurich, Switzerland HARRY BROOKS, Director of Field Services, American Institute for Property and Liability Underwriters, Philadephia, Pa. RANDOLPH E. BROWN, Vice President, American Surety Company, New York, N.Y. T. B. BROWN, Jr., Vice President, American Foreign Insurance Assn., New York, N.Y. WILLIAM C. BROWN, Vice President and Actuary, Colonial Life Insurance Company of America, East Orange, New Jersey W . O. BRYSON, Jr., Head, Department of Economics and Business, Morgan State College, Baltimore, Maryland PETER A. BURKE, Managing Director, American Society of Insurance Management, Inc., New York, N . Y . WILLIAM Α. Βυτζ, Assistant Secretary, Employers Reinsurance Corporation, New York, N.Y.

FRED A. CARNELL, President and Treasurer, American Liberty Insurance Company, Birmingham, Alabama ROY E. CARR, President, Providence Washington Insurance Co., Providence, Rhode Island

678

Appendix

H. CARKUTH, Sr., Vice President, American General Insurance Company, Houston, Texas ANTONIO CARVAJAL, ACTUARY, National Insurance Institute of Costa Rica, San Jose, Costa Rica J . B. CARVALHO, President, Metropolitan Fire Assurance Co., Hartford, Connecticut CHAULES C . CENTER, President, American Association of University Teachers of Insurance, University of Wisconsin, Madison, Wisconsin DONALD H . CHADWICK, Reinsurance Secretary, Atlantic Mutual Insurance Company, New York, N.Y. C A R L C . CHAMBERS, Vice President, University of Pennsylvania ROBERT CHAPMAN, Manager, Compania de Seguros Tequendama, Bogota, Colombia M A N U E L HAROLD CHAVEZ, Huebner Foundation Fellow, University of Pennsylvania F. H A S M A N CHEGWIDDEN, Vice President and Treasurer, Camden Fire Insurance Association, Camden, New Jersey FRANK A . CHRISTENSON, Chairman of the Board, America Fore Group, New York, N.Y. ALBERT H. CLARK, Huebner Foundation Fellow, University of Pennsylvania HOWARD B. CLARK, Vice President, American Liberty Insurance Company, Birmingham, Alabama PAUL F. C L A R K , Chairman of the Board, John Hancock Mutual Life Insurance Co., Boston, Mass. ROBERT F. CLARK, Manager, Canadian Reinsurance Company, Toronto, Canada ROBERT S. CLINE, School of Business Administration, University of Florida, Gainesville, Florida W I L L I A M W . COCHRAN, Executive Vice President, Reinsurance Corporation of New York, New York, N.Y. ARTHUR F . COEN, President, Società Italo Americano de Reassicurazioiii, New York, N.Y. H. D. COLEY, President, Durham Life Insurance Company, Raleigh, North Carolina FRANCISCO CONTIJOCH Y A N C I , C . P., President, Asociacion Cubana de Compañías de Seguros Contra Incendio, Habana, Cuba ENRIQUE CORTES, Manager, Compañía de Seguros Bolivar, Bogota, Colombia ARTURO COSTA, Director, Reaseguradora Patria, S . A . , Mexico, D.F. E. W . H. COWPER, Resident Secretary for Australasia, Insurance Company of North America Companies, Sydney, Australia BERKELEY C O X , General Counsel, Aetna Life Insurance Company, Hartford, Connecticut JAMES F. CRAFTS, President, Fireman's Fund Insurance Company, San Francisco, California NPTT.T F. CROWLEY, Assistant Insurance Manager, American Cyanamid Company, New York, N.Y. VINCENT CULLEN, President, The Treaty Management Corporation, New York, N.Y. W. F. CUSHMAN, Vice President, American Foreign Insurance Assn., New York, N.Y. ARTHUR C. DANIELS, Vice President, Institute of Life Insurance, New York, N.Y. ODILON DE BEAUCLAIR, President, American International Underwriters Represen tacòes, S.A., Rio de Janeiro, D.F., Brazil R O B E R T DECHERT, General Counsel of the United States Department of Defense, The Pentagon, Washington, D.C. M B . ALLAN

Delegates to International Insurance Conference

679

A. F. DEER, General Manager, Mutual Life and Citizens' Assurance Company, Ltd., Sydney, Australia PROF. HECTOR DELARA, President, Compania Federal de Seguros, S.A., Habana, Cuba ERNEST Κ . DEMING, Jr., Assistant Secretary, The Unity Life and Accident Insurance Association, Syracuse, New York J.J. DE SOTO, The Great Lakes Reinsurance Co., Toronto, Canada MANUEL DIAZ, Huebner Foundation Fellow, University of Pennsylvania O. D. DICKERSON, Instructor in Insurance, Wharton School of Finance and Commerce MALCOLM M. DICKINSON, Resident Vice-President for Europe, Insurance Company of North America Companies, The Hague, Netherlands JOHN A. DIEMAND, Sr., President, Insurance Company of North America Companies ; and Co-Chairman of Sponsoring Committee, International Insurance Conference JOHN A. DIEMAND, Jr., Vice President, Insurance Company of North America Companies, Philadelphia, Pa. FRANK DIMOCK, Research Assistant, The Canadian Life Insurance Officers Association, Toronto, Canada J. DEWEY DORSETT, General Manager, Association of Casualty and Surety Companies, New York, N.Y. DUDLEY DOWELL, Executive Vice President, New York Life Insurance Company, New York, N.Y. ALFRED DOWRIE, Vice President, Underwriters Insurance Company, Chicago, Illinois J. F. DRISCOLL, Corporate Secretary, St. Paul Fire & Marine Insurance Co., St. Paul, Minnesota VICTOR D'UNGER, Lincoln National Life Insurance Co., Fort Wayne, Ind. Ο. M. EARL, President, Grain Dealers Mutual Insurance Co., Indianapolis, Indiana ELDON E ARLE, Director, La Venezolana de Seguros, Caracas, Venezuela ADAN ECHEVERRÍA M., Superintendente de Bancos, Guatemala City, Guatemala FREDERIC W . ECKER, President, Metropolitan Life Insurance Co., New York, N.Y. VICTOR T. EHRE, President, Buffalo Insurance Company, Buffalo, N . Y . J. K. EISENBREY, Secretary-Treasurer, Insurance Company of North America Companies, Philadelphia, Pa. NAGUIB EL HARAKNI, Deputy General Manager, Misr Insurance Company, Cairo, Egypt ANTONIO M. ELIGIÓ DÉLA PUENTE, Consultor, Compañía de Seguros Mutuos Contra Indendios "El Iris," Havana, Cuba ALBERTO ELIZONDO, Gerente, Monterrey, Cia de Seguros, Sobre la Vida, S.A., Monterrey, Mexico PHILIP ELKIN, Instructor in Insurance, Wharton School of Finance and Commerce WILLIAM ELLIOTT, Chairman of the Board, Philadelphia Life Insurance Company, Philadelphia, Pa. H. B . EMERY, Distria Sales Manager, Retail Credit Company, Philadelphia j , Pa. HAROLD G. EVANS, President, American Casualty Companies, Reading, Pa. B. F. EVERTS, MANAGER, Universal Re-Insurance Company of Amsterdam, Amsterdam, Netherlands FOSTER F. FARRELL, Secretary-Treasurer-Manager, National Fraternal Congress of America, Chicago, Illinois

68o Ε. J .

Appendix

President, Woodmen Accident and Life Company, Lincoln, Nebraska A. FAUVETY, President, Asociacion Argentina de Compañías de Seguros, Buenos Aires, Argentina Luis FERNANDEZ AGUDIN, Union and Phénix Español Insurance Co., Madrid, Spain J. H. FINNEGAN, Manager, Actuarial Bur., National Board of Fire Underwriters, New York, N.Y. J. J . FOLLMAN, Jr., Director of Information and Research, Health Insurance Assn. of America, New York, N.Y. J O H N R . FONSECA, Department Head, Banking, Insurance and Real Estate, Mohawk Valley Technical Institute, Urica, New York H . W A L T E R FORSTER, Towers, Perrin, Forster & Crosby, Inc., Philadelphia, Pa. J . R . FOUCHET, Manager, Comité d'Action pour la productivité dans l'Assurance, Paris, France A R N E FOUGNER, President, Christiania General Insurance Co., Tarrytown, New York HERSHON FREEMAN, School of Commerce, Oklahoma A & M College, Stillwater, Oklahoma H O V E Y T. FREEMAN, President-Treasurer, Manufacturing Mutual Fire Insurance Co., Providence, Rhode Island T O R U FUJIKAWA, President, Asahi Life Insurance Company, Chiyodaku, Tokyo, Japan W . R A N K I N FUREY, President, Berkshire Life Insurance Company, Pittsfield, Massachusetts JOSE A. GARCIA, Vice President, Philippine International Life Insurance Company, Manila, Philippines ABELARDO GARCIA M E N D E Z , Director Gerente de La Tabacalera Compania de Seguros, S . A . , Havana, Cuba GUSTAVO GARCIA RODRIGUEZ, Insurance Lawyer, Havana, Cuba W . C. GEHRLEIN, Vice President, Swiss Reinsurance Company of Zurich, Switzerland ; United States Branch, New York 17, N.Y. PAUL F. GEMMILL, Professor of Economics, Wharton School of Finance and Commerce HERBERT E. GIRARD ET, Secretary and Foreign Manager, General Reinsurance Corporation, New York, N.Y. MIGUEL J . GODOY, Vice President, Ultramar Inter-America Corporation, New York, N.Y. R A U L G O D O Y - S A Y A N , First Vice President, La Metropolitana, Cia. General de Seguros, Habana, Cuba ARTHUR C . GOERLICH, Dean, School of Insurance, Insurance Society of New York, New York, N.Y. H . STANLEY GOODWIN, 2nd Vice President, McKesson & Robbins, Inc., New York, N.Y. HERBERT C. GRAEBNER, Dean, American College of Life Underwriters, Philadelphia 4, Pa. M A R I O GRANAI, Manager, Cia. de Seguros Generales, Granai and Townson, S.A., Guatemala City, Guatemala M A R I O GRANAI AREVALO, Granai and Townson, S . A . , Guatemala City, Guatemala W I L L I A M D. G R A N T , Executive Vice President, Business Men's Assurance Company of America, Kansas City, Missouri RODOLFO A. GRASSI, Life Department Manager, Instituto Nacional Reaseguros, Buenos Aires, Argentina DAVIS W . GREGG, President, American College of Life Underwriters, Co-Director, International Insurance Conference FAULKNER,

ARTURO

Delegates to International Insurance Conference

681

C. A. GRIMLEY, Insurance Commissioner, State Government Insurance Office, Brisbane, Australia RAFAEL GUERRERO BARREIRO, Director General, El Mundo, S.A., Compania Mexicana de Seguros, Mexico 6, D.F. CARLOS GUILLERMO RANGEL, Gerente, Seguros La Metropolitana, S.A., Caracas, Venezuela K. F. HAIDER, President, Insurance Association of Pakistan, Karachi, Pakistan G. VICTOR HALLMAN, III, Instructor in Insurance, Upsala College, East Orange, N.J. JAMES O. HAMMOND, Huebner Foundation Fellow, University of Pennsylvania PROFESSOR LOREN E . HANCUFF, F a r m i n g t o n , M i c h i g a n

PER M. HANSSON, Managing Director, Storebrand Insurance Company, Ltd., Oslo, Norway GAYLORD P. HARNWELL, President, University of Pennsylvania WILLIAM T . HARPER, Chairman of the Board and President, Maryland Casualty Company, Baltimore 3, Maryland FRANK HARRINGTON, Advertising Manager, Insurance Company of North America Companies, Philadelphia, Pa. SEYMOUR E. HARRIS, Chairman, Department of Economics, Harvard University, Cambridge, Massachusetts LESTER S. HARVEY, President, N e w Hampshire Fire Insurance Company, Manchester, New Hampshire WILLIAM EUGENE HAYS, Trustee, American College of Life Underwriters, New England Mutual Life Insurance Co., Boston, Massachusetts MANNING W . HEARD, Chairman, American Insurance Association, New York, N.Y. J. EDWARD HEDGES, School of Business, Indiana University, Bloomington, Indiana WALTER HEYMANN, Director, N e w England Surety Company, Havana, Cuba EARL HICKS, Assistant Director o f Research and Statistics, International Monetary Fund, Washington, D . C . R . WEBSTER HILLES, Vice President, Towers, Perrin, Forester & Crosby, Inc., Philadelphia, Pa. GEN HIROSE, President, Nippon Life Insurance Company, Higaskiku, Osaka, Japan DONALD M . HOBERT, Senior Vice President, and Director of Research, Curtis Publishing Company, Philadelphia, Pa. WILLIAM R . HOCKENBERRY, Director, Evening School of Accounts and Finance, University of Pennsylvania SEWELL W . HODGE, Secretary and Treasurer, Provident Mutual Life Insurance Co., Philadelphia, Pa. G. WRIGHT HOFFMAN, Professor of Insurance, Wharton School of Finance and Commerce M. C. HOLDEN, Managing Director, Wawanesa Mutual Insurance Company, Wawanesa, Man., Canada BENJAMIN L. HOLLAND, President, Phoenix Mutual Life Insurance Company, Hartford, Connecticut REIDAR HOLMSEN, Chairman, The Association o f Norwegian Life Insurance Companies, Oslo, Norway DAVID B. HOUSTON, Instructor in Insurance, Wharton School of Finance and Commerce WAYNE E. HOWARD, Instructor in Industry, Chairman of Arrangements, International Insurance Conference

682

Appendix

S. S. HUEBNER, Emeritus Professor, Wharton School of Finance and Commerce, President Emeritus, American College of Life Underwriters D. J . HUERTA PENA, General Manager, Espana, S.A., Compania Nacional de Seguros, Madrid, Spain J . C . HULLETT, President, National Board of Fire Underwriters, New York, N . Y . HENRI G. IBSEN, President, Constitution Insurance Company, New York, N . Y . JOSE IPANEMA MOREIRA, Assistant Superintendent, "Sul America" Cia. Nacional de Seguros de Vida, R i o de Janeiro, Brazil HAROLD JACKSON, President, WILLIAM H. McGee & Co., Inc., Indemnity Marine Assurance Co., Ltd., New York, N.Y. W . CABLE JACKSON, Director, c/o Modem Woodmen of America, Minneapolis, Minnesota WILSON C . JAINSEN, President, Hartford Accident and Indemnity Co., Hartford, Connecticut W . J . JEFFERY, Executive Vice President, United States Fidelity & Guaranty Co., Calvert and Redwood Streets, Baltimore, Maryland RAUL JIMENEZ, General Manager, Cia. General de Seguros, S.A., Panama, Republic ofPanama BERTIL AF JOCHNICK, President, Trygg Life and Fire Insurance Companies, Stockholm, Sweden DONALD R . JOHNSON, University of Miami, Coral Gables, Florida FRED A. JOHNSON, Supreme Archon, Royal League, Berwyn, Illinois HOLGAR J . JOHNSON, President, Institute of Life Insurance, New York, N . Y . HARRY W.JONES, Vice President, Mutual Benefit Life Insurance Company, Newark, N.J. CLYDE M. KAHLER, Chairman, Department of Insurance, Wharton School of Finance and Commerce GUNNAR KALDEREN, Deputy General Manager, Skandia Insurance Company, Ltd., Stockholm, Sweden SPENSER R . KEARE, President, Federal Life Insurance Company, Chicago, Illinois MICHAEL KEARNEY, Huebner Foundation Fellow, University of Pennsylvania JACK C. KEIR, Director of Educational Publications, American College of Life Underwriters, Philadelphia 4, Pa. E. GORDON KEITH, Chairman, Finance Dept., University of Pennsylvania ROBERT F. KELLER, Assistant United States Manager, Union Reinsurance Company of Zurich, Switzerland, New York, N . Y . RUSSEL EDWIN KENNEDY, Agency Manager, Pan-American de Mexico, Mexico, D.F. EVERETT L. KENT, President, Pennsylvania Manufacturers Association Casualty Insurance Company, Philadelphia, Pa. N . E. KIHLBOM, Past Chairman of the Board, Aequitas Swedish Reinsurance Company, Malmo, Sweden RICHARD DER. KIP, Assistant Professor of Insurance, Wharton School of Finance and Commerce and Executive Director, 75th Anniversary Program A. L. KIRKPATRICK, Insurance Manager, Chamber of Commerce of the United States, Washington, D.C. WALTER KLEM, Senior Vice President and Actuary, The Equitable Life Assurance Society of the United States, New York, N . Y . C . A. KLINE, Associate Professor of Insurance, Wharton School of Finance and Commerce

Delegates to International Insurance Conference

683

Professor of Insurance, Wharton School of Finance and Commerce Junior Partner, Koenig and Reeker, Köln, Germany HAROLD C. KROGH, University of Kansas, Lawrence, Kansas C. A . K U L P , Dean and Professor of Insurance, Wharton School of Finance and Commerce EDWARD C. LECHNER, President, General Fire and Casualty Insurance Co., New York, N . Y . N. R . LEON DE VIVERO, Gerente, Unidas de Seguros Compania, Lima, Peru WILLIAM LESLIE, General Manager, National Bureau of Casualty Underwriters, New York, N.Y. M. ALBERT LINTON, Chairman of the Board, Provident Mutual Life Insurance Company, and Co-Chairman of Sponsoring Committee, International Insurance Conference C. F . LITTLEPAGE, Vice President, Insurance Company of North America Companies, Philadelphia 1, Pa. LARL L J U N G , Vice President, Jefferson Standard Life Insurance Co., Greensboro, N.C. R . M C A L L I S T E R L L O Y D , Chairman and President, Teachers Insurance and Annuity Association of America, New York, N.Y. H A R R Y J . LOMAN, Professor of Insurance, Wharton School of Finance and Commerce, and Dean, American Institute for Property and Liability Underwriters R A L P H R . LOUNSBURY, President, Bankers National Life Insurance Company, Montclair, New Jersey V. H . LOUREIRO, Vice President and Managing Director, Baloise Fire Insurance Company of Canada, Toronto, Ontario, Canada THOMAS E. LOVEJOY, Jr., President, Manhattan Life Insurance Company, New York, N.Y. F . HAROLD LOWEREE, President, Monumental Life Insurance Company, Baltimore, Maryland PEDRO LOZANO CARRILLO, Gerente General, "La Union Gremial" Compania de Seguros, S.A., Rosario, Argentina THOMAS J . L U C K , Director of Management Education, American College of Life Underwriters, Philadelphia, Pa. JAMES Β. LUDTKE, School of Business Administration, University of Massachusetts, Amherst, Massachusetts E R W I N Η . LUECKE, Vice President, America Fore Group, New York, N.Y. DONALD L. M A C D O N A L D , Assistant Professor, School of Business Administration, University of Michigan, Ann Arbor, Michigan B A S I L C. M A C L E A N , M.D., President, Blue Cross Association, New York, N.Y. ALEXANDER M A C E E , President, Presbyterian Ministers Fund, Philadelphia, Pa. W I L L I A M M A C L E A N , President, National Union Insurance Companies, Pittsburgh, Pa. R O B E R T L. MACLELLAN, President, Provident Life and Accident Insurance Company, Chattanooga, Tennessee JAMES F . M A L O N E , Executive Vice President and General Counsel, Pennsylvania Manufacturen Assn. Casualty Insurance Company, Philadelphia, Pa. R O L A N D MATTHIES, Gerente, Compania Anonima Venezolana "Seguros Caracas," Caracas, Venezuela A . R O G E R S M A Y N A R D , 2nd Vice President, Metropolitan Life Insurance Company, New York, N.Y. M I L T O N M A Y S , Vice President, America Fore Group, New York, N.Y. CHARLES K . KNIGHT,

HANS KOENIG,

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Appendix

JAMES Β. MCAFEE, 2nd Vice President, Mutual Life Insurance Company of New York, New York, N . Y . E. J. MCALENNEY, Associate Counsel, Connecticut General Life Insurance Co., Hartford, Connecticut A. H. MCAULAY, President and Treasurer, North American Reassurance Company, New York, N . Y . LESLIE MCCALLUM, M.D., Member of the Council, British Medical Association, London, W . C , England ROY C. MCCULLOUGH, Assistant General Counsel, Lumbermens Mutual Casualty Company, Chicago, Illinois DAN M . MCGILL, Professor of Insurance, and Co-Director, International Insurance Conference CAUL E. MCDOWELL, Executive Vice President, American Institute of Marine Underwriters, N e w York, N . Y . VINCENT S. MCKERROW, Vice President, Reinsurance Division, Continental Casualty Company, Chicago, Illinois C. D. MCVAY, President, Ohio Farmers Insurance Companies, LeRoy, Ohio ROBERT I. MEHR, College of Commerce and Business Administration, University of Illinois, Urbana, Illinois ROBERT MEIER, Manager, "The Federal" Insurance Co., Ltd., Zurich, Switzerland WALTER O. MENGE, President, Lincoln National Life Insurance Co., Fort Wayne, Indiana EDMUNDO MERCHAN, President, Compania Colombiana de Seguros, Apartado Aereo 3537, Bogota, Colombia JACQUES MERLIN, President Directeur General, Du Groupement de Reassurances Maritimes, 58, rue Taitbout, Paris, France LEOJ. MERTEN, Michigan State University, Ε. Lansing, Michigan CLARENCE B. METZGER, 2nd Vice President, Equitable Life Assurance Society, New York, N.Y.

LINCOLN M. MICHEL, Vice President, Fire Association of Philadelphia, Philadelphia, Pa. H. C. MILLS, Resident Vice President, Canada, Insurance Company of North America Companies, Toronto, Canada BEN H. MITCHELL, Executive Vice President, Employers Casualty Company, Dallas, Texas JONAS E. MITTELMAN, Associate Professor of Insurance, School of Business and Public Administration, University of Kansas City, Kansas City, Missouri RALPH R . MOOR, President, New Reinsurance Company, Geneva, Switzerland ROBERT M. MORSE, Executive Secretary, Society of Chartered Property and Casualty Underwriters, Philadelphia, Pa. B. G. MULDOON, Vice President, American Foreign Insurance Assn., New York, N.Y. J . A. MUNRO, President, Prudential Insurance Company of Great Britain, New York, N . Y . HUGH H. MURRAY, Jr., President, American Institute for Property and Liability Underwriters, Raleigh, N.C. M. S. MUSTTAQI, Director, The Muslin Insurance Company, Ltd., Lahore, Pakistan A. LLOYD MYERS, Instructor in Insurance, Wharton School of Finance and Commerce and Assistant Treasurer, University of Pennsylvania

Delegates to International Insurance Conference

685

ROBERT MYERS, Chief Actuary, Social Security Administration, United States Department of Health, Education and Welfare, Washington, D.C. JULIAN S. MYRICK, Chairman of the Board, American College of Life Underwriters, New York, N . Y . ALFRED C. NEAL, President, Committee for Economic Development, New York, N.Y. ARCHIE NICHOLS, Huebner Foundation Fellow, University of Pennsylvania JAMES O. NICHOLS, President, American Foreign Insurance Assn., New York, N . Y . JOHN A. NORTH, President, Phoenix Insurance Company, Hartford, Connecticut HALBERT L. NUTT, Director, Life Insurance Marketing Institute, Purdue University, Lafayette, Indiana ISIDOR OSTROFF, Trade and Convention Center, Philadelphia, Pa. EDWIN S. OVERMAN, Director of College Relations, American Institute for Property and Liability Underwriters, Philadelphia, Pa. FABIO PADOA, Manager, Assicurazioni Generali di Trieste e Venezia, Trieste, Italy GERALD W . PAGE, Trustee, American College of Life Underwriters, c/o Provident Mutual Life Insurance Co., Los Angeles, California ENRIQUE PARIS AMBARD, Presidente, del Instituto Tecnico del Seguro, Caracas, Venezuela GERARD PARIZEAU, l'Ecole Des Hautes Etudes Commerciales, Montreal, Quebec, Canada GEORGE PARRISH, Treasurer, Life and Casualty Insurance Co., Nashville, Tennessee FREDERIC M. PEDICE, Managing Director, Life Insurance Agency Management Assn., Hartford, Connecticut JUAN MANUEL PENA PRADO, Chairman and President, Popular Y Porvenir Cia. de Seguros, Lima, Peru RUSSELL H. PERRY, Vice President, Republic Insurance Company, New York, N . Y . FRANCIS S. PERRYMAN, Actuary, Assistant U.S. Manager, Royal-Globe Insurance Group, New York, N . Y . V. I. G. PETERSEN, Vice President, Foreign Department, Insurance Company of North America Companies, Philadelphia, Pa. BENGT PETRI, Managing Director, Skandia Insurance Company, Ltd., Stockholm, Sweden LEROY PHAUP, Huebner Foundation Fellow, University of Pennsylvania RICHARD E. PILLE, President, Security Mutual Life Insurance Co., Binghamton, New York MARIO D. PLEVISANI, Gerente, " E l Sol" Compania de Seguros Generales, Lima, Peru W . IRVING PLITT, Vice President, Atlantic Mutual Insurance Company, New York, N . Y . JEROME POLLACK, Program Consultant, Social Security Department, United Automobile Workers, Detroit, Michigan M. ALLEN POND, Staff Assistant, Office of the Secretary, United States Department of Health, Education and Welfare, Washington, D.C. CALVIN L. PONTIUS, Sr., Vice President, Fidelity Mutual Life Insurance Company, Philadelphia, Pa. Lo RAN E. POWELL, Managing Director, Life Underwriter Training Council, Washington, D.C. FRANK P. PROPER, President, Employers Reinsurance Corporation, Kansas City, Missouri DUDLEY M. PRUITT, Assistant General Manager and Actuary, General Accident Fire and Life Assurance Corp., Ltd. of Perth, Scotland, United States Offices, Philadelphia, Pa.

686

Manager, Veterans Administration Insurance Center, Washington, D . C . QUINONES-CHACON, Gerente, Insurance Company of North America. Companies, Latin America Offices, Hato R e y (San Juan) Puerto Rico ISIDOR S. R A V D I N , M.D., John Rhea Barton Professor of Surgery, University of Pennsylvaniai School of Medicine, Chairman of the Board of Regents, American College of Surgeons, Philadelphia, Pa. A. RAwrrz, Manager, Osterreichische Versicherungs Aktiengesellschaft, Vienna, Austria JOSEPH H . REESE, Trustee, American College of Life Underwriters, c/o Penn Mutual Life Insurance Co., Philadelphia, Pa. NEO. D. R E Z N K , Instructor in Insurance, Wharton School of Finance and Commerce JONATHAN E. R H O A D S , Provost, University of Pennsylvania R . B . RICHARDSON, President, Western Life Insurance Company, Helena, Montana ADDISON A . ROBERTS, Vice President, Fire Association of Philadelphia, Philadelphia, Pa. FRANK A. ROBERTS, Executive Vice President, Glen Falls Insurance Group, Glens Falls, N.Y. H . MARSHALL ROBERTSON, President, General Security Assurance Company, New York, N.Y. JOSEPH R . R O S E , Chairman, Department of Transportation and Public Utilities, Wharton School of Finance and Commerce ALEXANDER L. R O S S , President, Crum and Forster Group, New York, N.Y. S. Z. ROTHSCHILD, Sr., President, Sun Life Insurance Company of America, Baltimore, Maryland LEO M . ROY, Director General, Pan-American de Mexico, Mexico, D.F. HILBERT R U S T , President, Insurance Research and Review Service, Inc., Indianapolis, Indiana R I C H A R D S. R U S T , Vice President and Secretary, Union Central Life Insurance Company, Cincinnati, Ohio JEROME SACHS, Director, Insurance Staff, Bureau of Foreign Commerce, United States Department of Commerce, Washington, D.C. I. G. SALTMARSH, President, Indiana Lumbermens Mutual Insurance Co., Indianapolis, Indiana ENRIQUE SAMANIEGO, President, Camara de Aseguradores de Venezuela, Esq. Las Madrices, Caracas, Venezuela O T T O SCHAFFER (representing Hans Gerling), Gerling-Konzern, Cologne, Germany G. H. SCHMIDT, Insurance Manager, Radio Corporation of America, Camden, N.J. W I L L I A M SCHMITT, U . S . Manager, Switzerland General Inc., Switzerland General Insurance Co. Ltd., New York, N.Y. R A Y M O N D SCHULTZ, Huebner Foundation Fellow, University of Pennsylvania STUART SCHWARZSCHILD, Huebner Foundation Fellow, University of Pennsylvania THOMAS P. SCOTT, General Manager, National Mutual Life Association of Australasia Ltd., Melbourne, Vic., Australia DAVID C. SEAGER, Resident Vice President, Philadelphia Office, Maryland Casualty Company, Philadelphia, Pa. H O W A R D D. SHAW, Director of Public Relations, American College of Life Underwriters, Philadelphia, Pa. F.

A.

Appendix QUINN,

BUENAVENTURA

Delegates to International Insurance Conference

687

DONALD T. SHEEHAN, Director, Public Relations, University of Pennsylvania G. SIBBERN, Managing Director, Bergens Brandforsikringsselskab, Bergen, Norway ALBERT J. SMITH, President, U.S. Aviation Underwriters Inc., New York, N.Y. BRADFORD SMITH, Jr., Executive Vice President, Insurance Company of North America Companies, Philadelphia, Pa. J. MAXWELL SMITH, President, Keystone Automobile Club Casualty Co., Philadelphia, Pa. WALTER L. SMITH, Jr., Treasurer and Secretary, Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, Philadelphia, Pa. H. WAYNE SNIDER, Asssociate Professor ofBusiness, Illinois-Wcsleyan University, Bloomington, Illinois WILLIAM B. STANNARD, Vice President in Charge of Agencies, Occidental Life Insurance Company of California, Los Angeles, California ERNEST STEEFEL, Attorney at L a w , N e w Y o r k , N . Y .

LEROY G. STEINBECK, Managing Director, American Society of Chartered Life Underwriters, Philadelphia, Pa. HERBERT P. STELLWAGEN, Executive Vice President, Insurance Company of North America Companies, Philadelphia, Pa. HAROLD M. STEWART, Executive Vice President, Prudential Insurance Company of America, Newark, N.J. JAMES STRAIN, Vice President, The Yorkshire Insurance Co., Ltd., New York, N . Y . MAKOTO SUETAKA, Professor of Insurance, Waseda University, Tokyo, Japan THOMAS W . SWEENEY, Vice President, H. Mosenthal & Son, Inc., New York, N . Y . VICTOR V. SWEENEY, College of Business Administration, University of Florida, Gainesville, Florida RONALD B . SWINFORD, Vice President in Charge of Insurance Relations, New York Life Insurance Company, New York, N . Y . GLEN TAYLOR, Huebner Foundation Fellow, University of Pennsylvania E. ADRIAN TEAF, Editor, The Annals, Philadelphia, Pa. A. H. THŒMAN, 2nd Vice President, Public Relations Department, New York Life Insurance Company, N e w York, N . Y . EUGENE M. THORE, General Counsel, Life Insurance Association of America, New York, N.Y. PAUL THORIN, Managing Director, Accident and Casualty Insurance Company of Winterthur, Winterthur, Switzerland JOHN O. TODD, Trustee, American College of Life Underwriters, c/o Northwestern Mutual Life Insurance Co., Chicago, Illinois NORMAN H. TOPPING, Vice President for Medical Affairs, University of Pennsylvania FITZHUGH TRAYLOR, President, American Society of Chartered Life Underwriters, Equitable Life Assurance Society, Indianapolis, Indiana CHESTER E. TUCKER, Vice President for Development and Public Relations, University of Pennsylvania HARRY E. UHLER, Trustee, American Institute for Property and Liability Underwriters, Inc., c/o Insurance Agency, Inc., Baltimore, Maryland ALEJANDRO URIBE, President, Compania Suramericana de Seguros, Medellin, Colombia

688

Appendix

WOODROW J. VAN HOUEN, Vice President-Manager, U.S. Aviation Underwriters, Inc., New York, N.Y. J. M. VANSTONE, Branch Manager, Toronto Office, Wawanesa Mutual Insurance Company, Toronto, Ontario, Canada Luis N. VARGAS, General Director, La Metropolitana, Compania de Seguros, S.A., Mexico, D.F. RODRIGO VASQUEZ, Manager, Reaseguradora de Colombia, Bogota, Colombia RUPERTO VAZQUEZ CRUZ, Assistant Superintendent, Office of the Superintendent of Insurance, San Juan, Puerto Rico ALBERT C . WALL, Vice President, Chubb & Son, Underwriters, New York, N.Y. ROBERTO G. WALLER, Presidente, "Sud America," Compania de Seguros de Vida, Buenos Aires, Argentina JOHN P. WALSH, Watters and Donovan, New York, N.Y. CHESTER T. WARDWELL, President, Life Underwriting Training Council, Central National Bank Building, Peoria, Illinois ERNESTO WARNHOLTZ, Vice President and Managing Director, Union de Seguros, S.A., Mexico, D.F. DENNIS N. WÄRTERS, President, Bankers Life Company, Des Moines, Iowa HAROLD L. WAYNE, General Manager, Inland Marine Underwriters Association, New York 38, N.Y. OSCAR WeGERT, Special Assistant to the Commissioner, Bureau of Labor Statistics, Washington, D.C. OTTOCARO WEISS, Chairman of the Board, Buffalo Insurance Company, Buffalo, N.Y. NATHAN H. WENTWORTH, Vice President, America Fore Group, New York, N.Y. WALTER H. WEST, Jr., President, Towers, Perrin, Forster and Crosby, Inc., Philadelphia, Pa. WALTER B. WHEELER, Director of Field Services, American College of Life Underwriters, Philadelphia, Pa. CHARLES R . WHITTLESEY, Professor of Finance, Wharton School of Finance and Commerce WILLIAM A. WICKHAM, Standard Accident Insurance Co., Detroit, Michigan V. R . WILLEMSON, President, Sterling Offices of Canada Limited, Toronto, Ontario, Canada FRAZIER S. WILSON, President, American Society of Insurance Management, c/o United Air Lines, Inc., Chicago, Illinois WILLIS J. WINN, Vice-Dean and Associate Professor of Finance, Wharton School of Finance and Commerce LOUIE E. WOODBURY, Jr., Vice President, National Association of Insurance Agents, Wilmington, N. Carolina MARION A. WOODBURY, Executive Vice President, Bankers Fire & Marine Insurance Co., Birmingham, Alabama H. EVERETT WOODRUTF, Vice President in Charge of Investment Operations, New York Life Insurance Company, New York, N.Y. HARUE YAMANE, President, Taisho Marine & Fire Insurance Co., Ltd., Chuoku, Tokyo, Japan PERCY D. YANG, Actuary, Boemi-Poetera Mutual Life Insurance Company of Indonesia, Djakarta, Indonesia

Delegates to International Insurance Conference

689

ICHIRO YANO, President, The Daiichi Mutual Life Insurance Co., T o k y o , Japan G. S. YEAHGAN, President, Trinity Universal Insurance Company, Dallas, Texas HUBERT W . YOUNT, Vice President, Liberty Mutual Insurance Company, Boston, Massachusetts EDMUND L. ZALINSKI, Executive Vice President, Insurance Company of North America Companies, Philadelphia, Pa. CHARLES J. ZIMMERMAN, President, Connecticut Mutual Life Insurance Co., Hartford, Connecticut