Assurance about Insurance


The Presbyterian Banner – May 2002

General Insurance is in the news these days. We have the Royal Commission into the HIH collapse revealing that the Company doctored their accounts so as to appear profitable when they were not. We have rapidly escalating Public Liability premiums putting community and tourism operators at risk of closure, an escalation driven by a change in attitudes and definitions of negligence as well as lawyers touting for business on a ‘no win, no fee’ basis. We have the impact of the terrorism attacks on 11th September reducing capital available in insurance markets and increasing the cost of the insurance insurance companies buy (reinsurance) to spread their risk. Compounding the problem is the higher capital adequacy (solvency) ratios required under APRA regulations promulgated some time ago.

Public Liability
On the Public Liability side there is no doubt in my mind that insurers have not done enough to properly underwrite these risks according to individual characteristics. It seems ridiculous that one major church insurer in New South Wales now charges $1250 minimum for liability coverage for an individual church even if that church has only 10 or 20 people attending. On the other hand, suppose you have a premium pool of $10 million from 8,000 churches paying $1250 each. One accident on an outing in which, let us say, a young person is killed, might cost two million, a couple of others $500,000 each and another 50, $50,000 each. Throw in a million or two for legal costs and then allow for administration costs, and you’ve nothing left. My illustration is hypothetical but not stupid. It illustrates that a low incidence of claims (less than 1 in a 100 in the above example), can eat up an awful lot of premium, the more so as larger claims often take years to settle and then in the values at the time of settlement not at the time of loss. Further, the large claim may come from that tiny church.

In actual fact insurers in Australia have a loss ratio exceeding 150% for Public Liability, so expect on average a doubling of liability premiums in 2002 and increases on property, particularly in NSW where weather claims have been a major problem for some time. To this fact the new roof on our Armidale church bears witness. Despite what I expect will be continual difficulty with liability business, now is probably the right time to buy shares in Australian general insurers. They will be more closely supervised in future and the cycle is moving in favour of more adequate premium to risk that had been undermined by excessive competition, not least from HIH. No one would want to insure with a Company that is not financially secure.

The nature of insurance
When I started work 40 years ago with an insurance company in Melbourne I didn’t know what an insurance broker was. Ten years later I resigned from my position as a Senior Account Executive with one of the world’s largest brokers to continue studies for the ministry. I was not infrequently asked how Christianity and insurance could be compatible. While I freely admitted insurance could be abused, in its essence it was thoroughly Biblical in my view. It was not a gamble (taking risk to gain) but a means of sharing risk of loss through a financial mechanism.

In very early times Chinese traders shared their cargoes among the fleet so that all shared in the loss if a vessel foundered. Villagers in early times would share in rebuilding the house of one of the community destroyed by fire or other misfortune. Burial clubs existed in ancient Rome.

Marine insurance was common in Europe before the organisation we know as Lloyd’s of London began in 1688, but Lloyd’s became one of the great success stories. Merchants met at Lloyd’s Coffee House to pledge their fortunes as security for taking a share of the risk of loss of a particular vessel by writing their names under details of the vessel or goods insured (hence the term ‘underwriter’).

One of the early fire insurance endeavours in London offered house insurance for 31 years following a single premium payment! That didn’t last long. Another (1696) was a mutual society called The Amicable Contributorship or, from its logo/firemark the Hand-in-Hand. The idea reflects the concern for each other that belongs to a true community. My first employer, the Sun Insurance Office, was founded in 1710, and was the oldest insurance company in the world (now part of Royal Sun Alliance).

The oldest life insurance organisation still existing was established in that then most Presbyterian city of Philadelphia in 1759. Sponsored by the Synod of Philadelphia it provided pensions for Presbyterian ministers and their dependents. Our own PCEA was one of the first clients of the AMP Society after it was formed in 1859.

Abraham Kuyper, Calvinist theologian and one-time Prime Minister of the Netherlands, was a strong supporter of the workers’ compensation legislation in his country enacted when he was in Opposition in 1901.

Christian scruples
There used to be a fair bit of scruple amongst Christians concerning insurance. It was thought to deny God’s providence. Now, while we must not trust in the means but in the one whose blessing is needful in all things, the occasional scruple against insurance still found seems to be a form of hyper-calvinism, a denial of the use of means to an end. ‘We won’t press the Gospel on sinners since God will save who he will’ say some. ‘We won’t take prudent measures to protect our property for the Lord will provide’ say others. In both cases there is a serious confusion of thought.

Through the magic of averages and the predictability of what we call chance, there are many matters which can be reduced to practical statistical certainty. God is, after all, the God of wisdom and order; he has not let our rebellion create true randomness although from one viewpoint it may seem so. It is reserved for the future for some to descend into chaos. Meantime, then, let us get on with serving God in this world making reasonable and rational decisions but always knowing that we depend on the one who makes all things, even the voiding of our insurance by some mischance, work together for the good of those who love him.

Insurance changes
And if your employer or community organisation can’t get Public Liability insurance then either he, she or it is a shocking risk, who should be prosecuted, or there’s something wrong in assessment of the duty of care in our society. Either way you are likely to be out of job in the same way as you will be refused a home loan if you do not insure the property. Insurance is essential in an industrialised society, hence the need for governments to provide terrorism cover.

However, if we judge everything in here and now money terms and want someone else to pay for matters which belong to the common things of life, we will be back to subsistence living. Already, medical malpractice premiums are almost unbearable so that if there is to be any protection in the future there will have to be considerable tightening up and the imposition of additional statutory limitations. A reversion to a true community with common goals, and values will help if those goals and values are seriously reflective of Christian teaching. You’ll still be liable if your ox that is known to be dangerous gores someone, or if you don’t have a guard on your terrace, but we’ll not be in the ridiculous situation that presently obtains.

The New Zealand no-fault accident scheme, which is run by the Accident Compensation Corporation there, covers everyone 24 hours a day, and might well provide a helpful model for a better way for many injuries. It should be considered. Taking away common law rights is a serious matter, but if leaving them destroys the system, change must come one way or another.