Paying the Highway Toll

The 40 million U.S. car owners who already spend $3 billion yearly on auto liability insurance will soon have to pay about $400 million more. Speaking for three of the biggest casualty companies--State Farm Mutual, Allstate. Nationwide Mutual--General Manager Vestal Lemmon of the National Association of Independent Insurers said: "Before the end of the year the western half of the country will see substantial increases. It may be the second quarter of 1957 before they get to the eastern areas." Another top rate-making group, the National Bureau of Casualty Underwriters (Aetna Casualty, Travelers, U.S. Fidelity & Guaranty), had already tipped its hand with a request for a 23% increase in Oklahoma.

The companies say that very few of them are making money this year. In 1956, despite an overall premium increase, the companies are heading into the red. State Farm Mutual, No. 1 U.S. auto insurance company (4,600,000 policies) expects to wind up with a $7 million to $10 million operating loss (v. a 1955 underwriting profit of $14.8 million); Allstate (Sears, Roebuck), just broke even in the first half of 1956 (v. an $11 million underwriting profit last year).

Generous Juries. The industry loss stemmed from the gain in highway accidents, which so far in 1956 added up to 8% more fatalities, 5% to 10% more accidents. But the accident increase only started the process; it is what happens after the accident that has caused most of the skyrocketing costs. The price of repairing battered cars and compensating maimed humans has shot up; claims now cost an average 41% more to settle than they did five years ago. A smashed fender that once could be replaced by a simple, curved piece of metal now involves large molded panels with sculptured lights. The bumper that cost $5 in 1940 now costs $20. In the good old days of divided windshields, the company could put in a new unit for $25. Adjusters expect the 1957 wraparound type will cost around $125. State Farm Vice President Thomas Morrill says that windshield replacements account for about 50% of claims filed under comprehensive policies, adds: "Many people, as soon as they get a little nick in the windshield, rush out and get a new one. There are a lot of nicks in windshields these days, and the problem of glass breakage is becoming acute." Two-toned paint jobs, rear ends that have reared up into expensive units, swooping chrome, power brakes and steering, windows and seats--all these have increased body repair costs.

Juries, particularly soft-hearted where the insurance companies pay the bill, have upped accident awards for personal injuries from an average of $3,490 to $11,576, or 231% since 1940; since mid-1955 alone, Nationwide has experienced a 43% rise in jury judgments. In ten years the highest verdict awarded in Los Angeles jumped from $33,000 to $156,000; there are instances of awards of $86,000 for a broken hip, $100,000 for losing a toe. Insurance companies find themselves increasingly liable for such ephemeral damages as plaintiffs' mental anguish, e.g., a Southwestern woman who merely witnessed an auto accident that left her untouched, even forced a company to pay her $90,000 on the claim (disputed by two eminent obstetricians) that the sight caused her to have a miscarriage.

Growing Problem. Biggest burden by far is the unmarried, under-25 male driver. Companies charge the under-25 males 2 1/2 times the premiums they charge those over 25, yet wind up losing money, e.g., Nationwide Mutual lost $2,147,000 on this group in 1955. For, while the under-25 male group amounts to only 11.5% of all drivers, it racked up 34% of all Nationwide bodily injury claims last year, and its accidents were one-third more costly to settle than the average.

Last week, even though it expected approval of its requests for an increase, the auto insurance industry still sounded like an industry with trouble. So long as the number of accidents continues to increase, the policy writers who base their rates on the previous year's experience, would stay a year behind.

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