A Risky Business

High-risk insurance was pioneered in the U.S. by Philadelphia's Insurance Co. of North America, which paid off every cent on a $300,000 "catastrophe" policy when the Boy Scouts' 1935 Jamboree was called off because of a polio epidemic. The business of writing policies on highly unlikely contingencies, how ever, for years remained almost totally dominated by Lloyd's of London. No longer. High-risk insurance is becoming an increasingly important part of the U.S. insurance business, and the dozen or so American firms that now specialize in it already account for fully a third of the $300 million in high-risk premiums written around the world each year.

The risks of being in high risk are sizable. The death of Tyrone Power while filming Solomon and Sheba cost Fireman's Fund Insurance Co. of San Francisco $1,350,000. U.S. companies that had insured the manufacturers of thalidomide suffered losses when the drug proved harmful to the unborn. Insurance Co. of North America wrote $7,800,000 in premiums on aviation insurance in 1959, but lost money on the insurance because of a rash of air crashes that year. Other high-risk insurers paid off nearly $1,000,000 on the gas explosion under the stands at Indianapolis' State Fairgrounds Coliseum, and a host of companies are stuck with as much as $25 million in claims resulting from the bursting of California's Baldwin Hills dam last December.

The giant of the industry and its current pacemaker is Chicago's Continental Casualty Co., whose high-risk premiums have tripled to $21 million in five years. Continental got into the business in 1954 by hiring away a Lloyd's expert named Vincent S. McKerrow, who now heads Continental's special-risks department, which has branches in 16 cities. Under McKerrow, Continental has insured a railroad against any harm that might be caused by two Siberian tigers being shipped to a St. Paul zoo, also insured members of a private New Orleans club against excessive bodily harm caused by the Mardi Gras festivities. Luck and nerve as well as experience are important, but Continental generally shuns such risks as traveling carnivals, stunt pilots and amateur parachutists. "We don't make snap decisions," says McKerrow. "We sit here for hours and discuss how to fix a rate, how to determine the hazards, and what our competitors might do in the same situation." The surge in high-risk insurance stems from many factors, nearly all of them connected with the pace of modern living. Faster air travel, more complicated machines and greater mobility have made Americans more conscious of the need for greater protection. In fact, the very technological advances that bring convenience into people's lives also bring added risk -- and added business for the insurance men.

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