Year of Catastrophe

Some writers use the word "catastrophe" loosely, but among fire and casualty underwriters, it has a particular meaning: a catastrophe is an event that causes insurance losses of $1,000,000 or more to a fixed property. And by that definition 1965 was a catastrophic year for the industry in the U.S. Altogether there were 13 catastrophes, the second-highest total in history; they included seven major tornadoes as well as Hurricane Betsy, which caused total damages of $715 million. Among losses not caused by nature were the crashes at various times of three new Boeing 727 jetliners involving insurance claims of more than $15 million. Thus 3,200 U.S. casualty companies paid out $600 million more than the $20 billion they collected in premiums.

The Windshield Factor. Adding to the problem was the fact that catastrophes occurred on top of an unusual rash of mere disasters. A Pennsylvania Railroad train derailment cost Travelers Insurance Co. $500,000. In the worst fire of the year, 53 men died in a missile-silo explosion at Searcy, Ark.; the entire insurance loss, amounting to almost $1,000,000, was borne by Aetna Life & Casualty Co. Most important, injuries and damage from auto accidents--which account for 40% of all casualty business--reached an alltime high. Not only were accidents more numerous, but they cost more; a smashed windshield, which 15 years ago would have cost $45 to repair, now involves as much as $145. In one injury case, a Michigan jury awarded a husband $9,537.30 for the loss of services and companionship of his wife, even though he outlived her by only seven days after an auto accident and was unconscious all of that time.

In spite of all this, the casualty companies still managed to make money. Much of their loss was covered by reinsurance (TIME, Dec. 24). Many companies more than made up for underwriting losses with investment earnings. And casualty companies, unlike life insurance companies, are quick to cover rising costs with higher premiums. Forty states last year approved higher auto insurance rates, and fire insurance rose 8% nationally.

Lightning Strikes Once. After three successive bad years, premium rates are due to rise again this year in most casualty categories. At the same time, the casualty companies are looking for other ways to offset losses. One is by reducing overhead; most companies are cutting office staffs, installing computers to handle paperwork, and working mergers with life insurance companies to improve profits. Most of all, they are pushing multiple-line insurance, in which a single policy covers everything from robbery to a ruined house. On the theory that lightning never strikes twice in the same place--or that investigators can catch it if it does--insurance companies have raised multiple-line business from $60 million to $1.6 billion in ten years, expect it to help them keep out of the clutches of catastrophe.

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