Why Insurance Is High and Hard to Get

THE U.S. is a riskier place than it was only a few years ago. Racial unrest, drug addiction, campus mayhem and rising crime have added not only social hazards but also economic costs to everyday life. When a house is burglarized or a school vandalized, almost everybody has to pay some part of the bill--through higher insurance rates. Changes in society, including the real or imagined decay of moral standards, have also exacted a toll. Insurance executives used to assume that loss claimants were honest; now the presumption is that many people cheat a bit. Greedy motorists and crooked repairmen conspire to kite repair bills and split the dividend. Noting that fire losses have climbed 15% so far this year, one Manhattan insurance broker says: "No one ever loses an old suit in a fire."

Partly because of the shift in attitudes and partly because of inflation, insurance for auto, fire, and especially burglary, is becoming much costlier and, in many areas, hard to buy at any price. Burglary insurance is no longer generally available in the larger cities of at least a dozen states--California, New York, Pennsylvania, Illinois, Ohio, Michigan, New Jersey, Massachusetts, Missouri, Maryland, Connecticut and Delaware--plus Washington, D.C.

Many companies now avoid writing policies on mountain, seashore and vacation homes because they are too exposed to vandalism and fire. One loss is often enough for underwriters to cancel a home or auto policy. For example, Greta Waingrow, a housewife in Brentwood, Calif., not long ago collected on a policy after the mysterious disappearance of her engagement ring. "It was the only thing of value I'd lost in 17 years of insurance," she contends. A month later, the company canceled her policy--without explanation.

In the field of auto insurance, blameless motorists are sometimes left uncovered because their companies have quit writing insurance in states with heavy claim losses or high auto-theft records, like New York. A number of insurers refuse burglary policies to bachelors, divorcees and widows because they live alone; others try to avoid writing auto coverage for the young, the aged, bartenders, race-track employees and clergymen.* A few companies are pulling out of the auto field entirely. Insurance companies are not obliged to underwrite doubtful risks. But applicants who are rejected for auto or housing policies can generally get at least some insurance at higher rates through assigned risk pools.

Cost of Design. In some places, premiums are going through the roof. Auto-liability rates recently jumped 23% in Florida and 90% in Hawaii. That may be enough to push some motorists into alternative means of travel. Bernard White, 23, a teaching assistant at Michigan State, saved $2,100 to buy a new car this summer. Then he discovered that liability insurance would cost him anywhere from $330 to $650 a year, depending on what company wrote the policy. A bit shocked, White did some figuring. "In three years," he explains, "I would have paid 50% or more of the purchase price for insurance." Instead of a car, he bought a motorcycle.

Auto insurance is high, say the insurers, partly because manufacturers design cars that can crumple easily in minor accidents. Allstate Insurance Co. last spring offered a 20% discount on collision coverage for any car that could withstand a 5 m.p.h. crash without front-or rear-end damage. So far there have been no takers. Criticizing Detroit's 1971 models, Allstate Chairman Judson Branch complains: "Look at the bumpers! Still tucked against the sheet metal: a perfect battering ram and shock transmitter. Another model year down the drain as far as sturdier cars go."

A Plan for No Fault. The cost of theft, burglary and fire insurance has climbed beyond the reach of many inner-city merchants. To thwart robberies, some small-shop owners in Manhattan now keep their doors locked during the business hours and have hired private patrolmen. Battered universities are also being hit by crushing increases in premiums. The University of California's bill to insure its buildings against fire, bombs and other riotous mishaps has leaped in just two years from $80,000 to $648,000.

Insurance men argue with considerable justification that many politically sensitive state authorities prevent them from raising rates for individuals fast enough to cover the soaring claims. Last year the industry lost $660 million on auto insurance alone, and over the past decade it has paid out $2 billion more in claims than it has collected in premiums. Profits from investments have kept most insurance companies in the black, but the recent stock market slump has squeezed that source of income.

What can be done to ease the crisis in casualty insurance? The most important and widely supported reform is "no fault" auto insurance, under which a victim's own policy would cover his loss, no matter who was responsible for the accident. Proponents argue that the system would cut down on today's long delays for litigation, enable seriously injured victims to collect more money sooner, and greatly reduce the insurance companies' administrative costs. Transportation Secretary John Volpe is pressing the White House to back a limited form of no-fault insurance on a nationwide basis. But such a change would hurt many powerful interests, notably lawyers who now pocket a large percentage of damage awards, and the Administration prefers to wait until next year before sending any proposal to Congress.

One step that the states could take would be to adopt tougher licensing standards to keep unsafe drivers--those who are drunks, ill, infirm or accident-prone--off the roads. Complains David Phillips, an official of the State Farm Insurance Companies: "State authorities don't have the political guts to take licenses away from irresponsible drivers. Our files bulge with people insured under assigned-risk plans despite five-to-eight drunken-driving citations." In other areas of insurance, home owners will probably have to accept $250-deductible clauses if fire and theft rates are to be kept anywhere within reason. There will be no real relief, though, so long as the nation continues to set records for crashing, stealing and burning. Until the U.S. becomes a calmer, safer place, the policyholder will have to pay more and more for less and less protection.

* Actuaries contend that clergymen are among the highest-risk drivers because they are often out late on emergency calls, worry about other people's problems, are overworked and underpaid.

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