Happy Days

There was a time in the insurance industry when auto insurance consisted of seven rating groups — including farmers and the clergy — and yet everybody applying for insurance was able to fit in and be rated for premium. There was also a time when large claim settlements and court awards were unheard of — at least until as recently as the early 1970s, when an industrial accident claim was settled for an amount approaching Cdn$230,000.

Prior to that claim event, one’s impression of life conjured the idea that being alive was idyllic; that promoting the benefits of moderation, temperateness and tranquility would ultimately cause these qualities to infuse themselves into every element of living. It might be true to say the ’50s and early ’60s represented a certain era of idealism. At that time, looking forward 50 years into the future, one predicted cars that could levitate, travelling above the road; a computer system that would do the work of an underwriter and a typist (all hail the early IBM 305 RAMAC, the first commercial computer that used a hard disk drive — unless there were more than two changes to a policy within the annual term) and fins on a Cadillac that portended even more futuristic designs — like pods made of clear plastic, for example, that would become the standard of the auto industry, mimicking the cartoon Jetson’s family’s mode of travel.

None of this actually happened, of course, notwithstanding our advancements in computerization. What did happen was a change in the way people lived or thought about living, and the increase in accidents and attendant claim awards (both in and out of court) for all manner of disasters, whenever and wherever they struck.

It’s possible the end of World War II brought about a wave of self-satisfaction, feeding the concept that things could only get better. The early vagaries of life and its concession to the confinements of the war years no longer had a stranglehold on people; they were free to wear the proverbial rose-coloured glasses.

This way of thinking might have lasted for a longer time had it not been for change that started to set in. The cultural shift could be attributed to any number of events: the police action of the Korean conflict, followed by the Vietnam war and other war-like activities throughout the world; the so-called ‘Flower Children’ of the ’60s; race riots; and a general and generous flaunting of authority engendered by the observation of the sheer lawlessness of war catapulting fringe elements into full-blown anti-authority mind sets. It was once expressed that in all the recorded history of the world, some 5,000 years, there is only a total of about 250 years when there has been no war. The corollary is that peace is liable to break out at any time.

INSURANCE: USES AND ABUSES

Is it true, then, to say that the way of modern living and the state of the world within the last 40 years have had a lasting effect on the way people think? Drawing an analogy, could the insurance product in some way help to explain the contemporary tendency to make claims against one another as soon as disaster strikes?

If the answer is ‘yes’, then insurance has fulfilled a remarkable responsibility, albeit for the wrong reasons (or nearly all of the wrong reasons). It is not insurance that is ‘wrong,’ but rather the use of it by those who find a satisfaction in claiming for a hurt, no matter how small. Based on its potential to be abused, insurance has been dissected to discover its soul, pulled into all manner of shape to prove its faith, tested for its legality, questioned for its intention and measured for its purpose as a saviour against catastrophe. It has come though all of this and more with a smile on its face.

There was once a time when insurance acted as a guard against true and pure financial disaster. Its use was reserved for claims of provable calamity. It provided protection against medically factual debilitating injury and against other situations and circumstances that bore the mark of realism, based on incontrovertible truth of loss and/ or damage.

In those times, it was not necessary to cloak a claim in exaggerated damage dollars, an extravagance of pain and suffering nor the fictitious permanency of its effect on one’s health. In fact, in those days, claimants were happy to get better. Whatever they received for their loss counted not as vindication against wrong-doers, but rather as a simple substitution without malice of a dollar spent for a dollar gained. Claimants in those days discarded the crutches, removed the bandages, ignored the scars and promised themselves to do better the next time. It did not take a lawyer, accountant, medical referee or a boardroom of dynamic directors to decide upon quality or quantum of dollars to be paid. Claims were a private matter between the insurer and the insured. They were paid as direct compensation to policyholders, expensed calmly and ideally, with all concerns satisfactorily managed and controlled. The specter of loss dollars expanding in order to cover the costs created by a claim ballooning out of all recognizable proportion would have been viewed as bordering on malfeasance. The broken bones, lesions and the property damage have not changed over the years. But the manner in which they are accepted as trade-ins for dollars is a novelty. These days, dollars perpetuate within the insurance system as charge-backs, continuing as they do in an ever-upward spiral. Take, for example, the premium for a school bus in early 1970. A 72-passenger yellow school bus at that time could be insured for Cdn$90, while a new Chev sedan was no more than Cdn$150.

These were not suppressed premiums. They were not premiums that failed actuarial tests. They were not premiums deliberately set as a stunt to encourage new business. They were the premiums of the day, encouragingly offered and happily accepted. If there had been even the least amount of suspicion that the level of premium would eventually destitute the class or the insurer’s treasury, it did not come close to a thought, embryonic or otherwise.

The system that has developed of claiming far beyond the real value of loss or damage is symptomatic of a public that has been hand-led into a realm of aggrandizement of fact and artificial reasoning. No claim should be worth more than its intrinsic value.

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Years ago, it was not necessary to cloak a claim in exaggerated damage dollars or an extravagance of pain and suffering.

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There was a time when insurance acted as a guard against true and pure financial disaster.