CHAPTER IX

The Struggle For Survival(1960-1970)

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By 1957, the post-war economic companies posred modest gains decade in a relatively strongboom in Canada began to falter. in 1961 and 1962. The return of position.The tremendous expansion of the profit was accompanied by The CUA, always a leader in theearly 1950s, based predomi- renewed - and fierce - competi- insurance industry, supponed anantly on expons of ptimary tion. But 1963 and 1964 losses number of innovations designedproducts, could no longer proVide exceeded those of 1956 and to restore stabiliry to the market.jobs for the steadily increasing 1957. The most imponant of thesework force. During the recession Competition was so fierce that at changes came in 1964, with thethat occurred late in the decade, times the existence of the Cana- formation of the Insurance Bureauthe government devalued the dian Underwrirers' Association of Canada. This restored some-Canadian dollar to 92.5 cents in seemed threatened. At a time thing of a sense of cooperationan effon to stimulate foreign when the rates should have between insurance companiestrade. This recession continued increased, competition promoted which, in turn, prompted a mod-into the early years of the 1960s, increased agents' commissions, est recovery in the latter half ofwhen the Canadian economy reduced rares and greater cover- the decade. However, chaoticagain returned to an expansionary age. The decade proved market conditions returned inphase, buoyed by American extremely trying for the CUA, but 1969 and heralded the onset of acapital. its survival stemmed from its petiod of prolonged underwrltingThe insurance industry, like the abiliry to adapt to adverse condi- losses for the insurance industry.economy at large experienced tions. Despite the resignation of a The underwrlting results of theboth profitable and unprofitable number ofcompanies that felt fire and casualry companies inyears durlng the 1960s. Following they needed total freedom to Canada for 1960 showed a mod-the disastrous results of 1956 compete in the frenzied market, est profit of $36 million (thisand 1957, the underwrlting the association emerged from the represented a 4 percent ratio to....~~~--~=-~

The canadian Pavilion at. Expo '67 inMontreal. an incernationaJ symbol ofcanadian achievement and progress.

W:B. Ben, CUA President t 1961

H.D. McNairn. CUA PresJdenc ,1962

the local boards in the Atlanticprovinces with Atlantic branchoffices ofthe CUA. Obstaclesdelayed this expansion until1962.

Despite the modest recovery inunderwriting results in 1960 andearly 1961, competition wasagain showing signs ofheatingup. W.H. Befl thought it was timeto:...warn everyone in our businessaboul the dangers ofunbridledcompetition in rates. forms andcommissions, by reminding them ofwhat this did to our business such ashan time ago, and by pointing outthat the narrow profit margins ofthepast two years could easily disappearand turn into losses which could beextremely harrnfuI to the companiesin our business.Fortunately there were no spec­tacular losses in 1961 and thecompanies again posted a modestexpansion in business. The

premiums earned). The siruationprompted CUA President W.H.Bell to describe 1960 as "thebest year...in an unprofitablecycle:' After three unprofitableyears in the latter halfof the1950s dUring which insurancecompanies recorded a loss inexcess of$1 00 million, the indus­try had registered a small under­writing profit in 1959. With thecontinued improvement in 1960,many hoped for a decade ofprosperity.

Members of the CUA took plea­sure in the moderate increase intotal business volume written in1960, during a period character­ized by a general decrease inCanadian business. Bell warnedassociation members that whilemost observers agreed the reces­sion had 'bottomed-out' and theeconomy was moving toward aperiod of recovery, the slackeningin the country's trade and com­merce would be soon felt by theinsurance industry. The industrywas slow to feel the effect of amajor economic boom or slump.Business for 1961 was expectedto remain stationary or perhapsshow a slight reduction.

Despite the improvement in 1960,the loss ratio remained high. Thisreflected the broad forms ofcover­age being written at uneconomi­cal rates. The CanadianUnderwriters' Association facedtwo choices: either to increasethe general rates or to reduce theexpense factor considerably. Inthe next few years, fierce compe­tition drove rates down, despiterising claim costs.

Under the plans adopted in 1957to operate the CUA throughbranch offices across Canada, anew office was opened in Calgaryin 1960 to serve the people ofAlberta. The Winnipeg branchhad previously controlled theAlberta business. In 1960, theCUA Council was authorized toproceed with the plan to replace

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increase in volume was, however,the lowest that the industry hadexperienced in many years, her­alding a period of slower growth.in 1961, President H.D. McNalrnexpressed some concern over thelow portion ofearnings generatedby the two classes fanning thebulk of the associated companies'business, fire and automobile.The fire business had sufferedfrom comperitive pressures for anumber ofyears. Harry Beil,fanner chalnnan of the PropertyDepartment's Executive Commit­tee (in which fire insurance wasincluded) made an interestingobservation on the situation:

Some of the downward pressure onrates has been generated by our ownmembers who feel that the falling offin the rate ofincrease in premiumincome is entirely due to loss ofbusiness to non-member competi­tors. I learned quite recently thatsome ofthose competitors are equallyconcerned and felt they were losingbusiness to us.The automobile business alsowitnessed a disturbing trend.Between 1957 and 1961 the

. earned premiums total was$1,472,546,532 and the loss$945,082,951. This representeda loss ratio of 64.18 percent overfive years. J.T. Buttery, Chalnnanof the Automobile Department

The CUA TrainingSCbool openedFebroary2o,1961, tbefIrstofItskindIn Nortb AmerIca. Tb1sgroup,about 1963, wasraugbtby Dr. w.s.Hutton, Ontario CbiefEngineer andSChool "Principal", atright ofgroup.

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Executive Committee was under­standably distressed with thelevelling offof the earned premi­urns and the deterioration of theloss ratio. He also pointed outthat compensation for injuriesand property damage, as a resultof automobile accidents, hadbecome a social problem.

Pressure from the public createdan intense interest in this problemby various government authori­ties. This interest resuited in theformation of a number of provin­cia! commissions to study auto­mobile insurance during the1960s. Buttery suggested theassociation should concern itselfwith the broadening ofcoveragewithout materially affecring thecost of protection. "We mustendeavour to maintain a ratelevel that is fair to the public andat the same time protects thesolvency of the Insurance Com­panies." (The Casualty Depatt­ment of the CUA wroteapproximately 50 percent of thetotal business and suffered a lossratio of 47.58 percent).

With competition for businessgrowing, it was apparent thatany attempts to increase rateswould be met with a correspond­ing loss in business. McNairnobserved, "We have, in thiscountry, one of the widest andmost competitive insurance mar­kets to be found in the woridtoday." He expressed concernthat, despite the harsh lessons ofthe immediate past, there couldbe a rerum to the chaotic condi­tions of 1956-57, as competitioncontinued to intensifY, patticularlyin Ontario and the far West.Describing the industry'S instabil­ity, McNairn said:The business is going through aperiod of change. There is a greatdeal ofunrest flowing from theuncertainty in the minds of companymanagers and agents as to whatshape and form the business willtake in the future and what develop­ments in agency relations and mar-

keting practices will prove to be ofapennanent nature.Duting this period, numerouschanges were taking place in theinsurance industry. Companymergers were common and fre­quent, changes were made inpractices, rates and forms inorder to compete with directwriters and other rivals. McNaimwarned that hasry and ill­conceived decisions born out ofcompetitive pressures had to beavoided.Another problem McNairn spokeof at the annual meeting was thepractice ofsome brokers andagents of making full use of boardfacilities and services while plac­ing all or pan of their risks withnon-member companies. Withthe expense rate often determin­ing the margin between profitand loss, CUA members opposedsuch action. They believed, asdid most agents, that where aboard service was employed, theassociation should benefit.One of the most significantchanges of the early 1960s wasthe eastward expansion of thecanadian Underwriters' Associa­tion. In 1962, the CUA became atruly national organizationstretching from St. john's, New­foundand to Victoria, BritishColumbia. Under terms of theagreement of amalgamation theBoards of New Brunswick (1866),Newfoundland (t892) and PrinceEdward Island (1883) becamebranches of the CUA effectiveJanuary 1, 1962.The jurisdiction of the associationnow extended Canada-wide, withthe single exception of propertyinsurance in Nova Scotia. Inassessing the importance of themerger, H.D. McNairn com­mented:In years to come Ibelieve we willlook back upon the reorganization inconnection with these mergers asone of the most useful steps theBoard has taken in many years to

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E.A.W: Paterson, CUAPresident, 1964

R.F. Swaine. CUAPresJdent, 1963

During 1962, the associationreponed 40 infractions wheremembers wrote or accepted busi­ness contrary to the tariff. Allsubstantiated claims were cor­rected either by cancellation oramendment of the policy. Infrac­tions fell into the following cate­gories: property-26:automobile-4; and, casualry-l0.At one particularly boisterousCUA council meeting in the late1960s, a member maintained thathis company was suffering as aresult ofviolations ofthe tariff byhis confreres around the tabie.This was vigorously denied by all,whereupon the CUAgeneralmanager instructed the staff toquietly conduct spot checks of thebusiness written by members ofcouncil. W.G. Seaton, then Prop­erty Department Superintendentin Ontario Branch, recalls that notonly was the accusation justified,bur the complaining member wasfound to be every bit as guilry ofrate-cutting as the others. Perhapsthis was one reason for the declinein the number ofofficial com-

Special Risks Superintendents attending the euA's first Special RisksSuperintendents'Seminar. for a week in June 1963: . ..Standing, left to right: Don MacGowan, New BrunswI~k. SpeCIal RiS~S ,Superintendent; Dan White, Quebec, Assistant SuperIntendent Sp~Clal Risks;Doug Hurst, Mid-west, SR Superintendent; Case;: 1bmasek.. oncano, ~RSuperintendent; Tim Collinge, Alberta, SR Supenntendent; Gord Collins,Ontario, DirectorFire Prevention Training. ,Sitting, left to right: John Windsor, Newfoundland, SR supe.nntendent; DonGrant, Quebec, SRSuperintendenc; BiIJ Head, Ontario, AssJsta~t.Manager;RoyPugh, Nova Scotia. SRSuperintendenc; Dave Mantador, ~rlt15hColumbia, SRSuperintendent; Bernie D'Amour,. Quebec, ASSIstantSuperintendent SR.

permit it to deal effectively withcompetitive conditions... lt incorpo­rates a high degree of flexibility andthe machinery for speedy consider·ation, decision and action.Adverse competition continuedinto 1962. Although increases inpremium incomes amounted toonly one percent during the year,the insurance companies faced a12 percent increase in claims.Each major class deterioratedwith the largest increases in lossratios occurring in the two largestclasses, automobile (63.8 percentto 71.5 percent) and fire (52.2percent to 56.5 percent). Compe·tition forced companies to lowerrates and provide broader cover·age. Price was being regarded asthe sole consideration in insur­ance purchasing and agentsplaced greater emphasis on 'gim.micks' in coverage they offered.This disturbing trend took placewith little regard for fair andeqUitable acquisition costs and,during a period of more frequentclaims, worked to the disadvan­tage ofboth the industry and theinsuring public.

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plaints lodged with the associa­tion in the final years. Certainlyno member could righteouslyaccuse others of transgressionswhen he himselfwas guilty ofthesame sins.The year 1963 proved disastrousfor the Canadian Underwriters'Association and the entire indus­try. Escalating competition degen­erated into a rate war that causedthe 300 insurance companiesoperating in Canada to scramblefor the available business byoffering more comprehensivecoverage for the same premiumdollar. From 1961 to 1963, somefire and general property insur­ance buyers enjoyed rate reduc­tions of 15 to 40 percent. Beforethe year was over, the industrywould report a record loss ofaimost $80 million. In assessingthe state of affairs, General Man·ager W. W. Owen said, "It is quiteobvious that in company ranks,only a few fortunates will be ableto look on this year's results withanything but remorse ,"

ofatrocious. This occurs in everyclass of business from the commondwelling to the most complex ofindustrial plants. The carelesssmoker, the careless welder, childrenallowed to play with matches, thedrive for production at all costs,particularly to the detriment of fireprotection, all cost the InsuranceIndustry millions of dollars annually,and the narion millions more in lossof producrivity. uninsured propertiesand a frightenlng toll of life. Thereseems [0 be almost an apathetiCapproach to the problem of firewastage.Malr advocated better educationof the pubiic in fire safery andlamented that while the existingrates were inadequate, there was

ACCIDENT VACCINE?WELL, NOT EXAcnY. nmyears ago, polio was a major killer ofyouth;today, vaccine has made the disease a comparative rarity. But, even whenpollo was cIaiming lives by the hundreds, trafflc accidents were killing morepeople under 2S than any othersingle cause ofdeath - and they still are.

Do we have an acddent vaccine?No. People can't be vaccinated against accidents, but the toll can be reduced

through the teacbingofcorrea driving habits - and safety habits - to ourteen-age population atlhe formative stages in their lives.

This is what the automobile Insurance business does through itssponsorship ofthe NacJonal Then-age Sale Driving Championship - thecuimlnation ola coasc-to-co.ast s~ries olsafe driving competitions involvingmore tban 30,000 youngdnvers 10 225 canadian communities each year.

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reported a loss ratio of67 percentfor 1963. In his report at theannual meeting, Chairman of theDepartment, J.D. Mair, remindedmembers that while the need toincrease rates was apparent,attention also had to be paid tothe alarming fire wastage incanada. In citing a lack ofcon­cern by the public and industry ingeneral which he found difficultto understand, Mair commented:Areview ofanyone of our Membersloss files cannot but help draw ourattention to this facl. The growth ofarson in all parts of the country itselfis bad enough. but the amount ofgeneral carelessness and lack ofsensible fire prevention is little shon

CUA members particularly suf­fered from the irresponsible com­petition because their rates andcommission scales were set bythe association. This put them inthe unenviable position ofobserv­ing the rules and losing businessor risking rule infractions in orderto attract business. There was anever-increasing awareness withinthe membership of the associa­tion that some of the traditionalapproaches to the problemswhich they now confrontedrequired modification. Specialcommittees were formed to con­sider the changes suggesredduring meetings. This led to areview of established practicesand produced some improve­ments to the system.Despite willingness to entertainchanges, the CUA was forced toreflect on its own operationalprocedures, as revealed in thefollowing exerpt from a 1963news article:.. .many CUA companies have beenbalking at this tight control. Somehave openly flouted CUA rates. andsome are reported to be consideringresignation, in order to meet ratecuts by non-members. The CUA, forits pan may be forced to give itsmembers more freedom.(Financial Post. February 2, 1963.)Company representatives did notconfine their d'iscussions tochanges in rate levels, forms andrules, but went so far as to con­sider the establishment ofa newinsurance organization.

One newspaper article describedthe sItuation very succinctly:"The insmance business is goingto the dogs because of recklessunderwriting, blanket policies,unusual privileges and low rates."Interestingly, these words weren'twritten in 1963! They appearedsome 80 years eariier in an 1883edition of the Montreal Chroniclewhen similar chaos had led to theformarion of the Canadian FireUnderwriters' Association.

CUA:s Property Department

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tremendous pressure beingapplied to package and expandmore and more classes ofbusi­ness.CUA:s Automobile Departmentexperienced its "most depressingyear" in 1963. during which itrecorded its heaviest loss onrecord. While earned premiumsincreased by nine percent to$383 million, incurred losseswent up by 19.3 percent to $300million, resulting in a loss ratio of78.36 percent. As with the prop­erty business, the AutomobileDepartment reported a significantincrease in claims against boardcompanies. OVer the last year.the frequency ofaccidents hadincreased at an alanning rate of11.3 percent. compared withonly a 4.2 percent rise in thenumber of licensed vehicles.

In order to combat the intensely­competitive trend in insurancerates, the Canadian Underwriters'Association began negotiationswith a group that had been untilthen a bitter rival - the Indepen­dent Insurance Conference. TheliC was established in 1964through the amalgamation ofseveral groups. including theIndependent Fire Insurance Con­ference. the Independent Auto­mobile and Casualry InsuranceConference. the Central Fire Insur­ance Conference. the VWsternCanada Automobile InsuranceConference, the Independent FireInsurance Conference of BritishColumbia and the IndependentAutomobile Insurance ConferenceofBritish Columbia. The newly­formed IIC thus assumed controiover Quebec. Ontario, Manitoba,Saskatchewan. Alberta and Brit­ish Columbia.The IIC was a much looser-knitorganization than the CanadianUnderwriters' Association. withless control over participatingcompanies. The conference oper­ated on the following principles,

mlb study and promote simiplificanonsand accuracy ofrating methods andrate presentations;~I)

lb secure the adoption by membersofsuitable and uniFonn policy, Fonnsand clauses;~D)1b regulate acquisition expenses(induding contingent commissions)and all other methods of renumera­tion to agents and brokers.The IIC established maximumcommissions slightiy above thoseallowed by the CUA, which gaveIIC companies something of anadvantage in competition forbusiness.When preliminary negotiationsbetween the two organizationsbroke down. the stage appearedset for an all-out premium andcommission rate war. While itwas apparent to all involvedthere must be a return to stabiliryand sound underwriting practices,the intense competition andunprofitable operations madecompanies unwilling to trust oneanother enough to lay the foun­dations for long-term coopera­tion. The tremendous competitionthat produced falling premiumsbecame a struggle for corporatesurvival. This stnlggle rocked thefoundations of the CUA as tradi­tiopa! law-abiding membersthreatened to break loose in orderto compete effectively with ratesand commissions offered by non­board companies.

The central issue in the CUA-IICdisagreement was agents' com­missions. particularly in theautomobile field. While CUAmembers were prohibited frompaying more than 15 percent onprivate passenger business.members of the IndependentInsurance Conference could pay17.5 to 20 percent commissions.Both organizarions agreed inprinciple that a commission ceil­ing should be established (prefer­ably at the lower CUA rate). But

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some of the liC companies werereluctant to relinquish theiradvantage over the CUA mem­bers.It was clear. however, that some­thing'had to give' •and the for­mation of a new industry-wideorganization was finallyannounced early in 1964. TheCanadian Underwriters' Associa­tion, the Independent InsuranceConference and 27 independentcompanies agreed to participatein the formation and operation ofthe Insurance Bureau ofCanada.The bureau would exercise nodirect control over premium ratesor agents' commissions. butwould serve as a "forum fordiscussion of all matters of com­mon interest to members." Theobjective as outlined in thebureau's constitution read inpart,(a)to collect, collate and disseminatestatistical infonnation in fields ofinsurance ofimerest to members;(b)to make surveys and reports on anymatters of interest to the members.and;(c)to make representations on behalF ofthe members through whatever seemto be the appropriate channels on allmatters in which members have acommon interest.This rather innocuous wordingwas necessary in order to estab­lish a basis for cooperation, aswell as to avoid conflict with theanti-combines legislation. Thenewly-formed Insurance Bureauinvolved companies writing about70 percent ofgeneral insurancein Canada, and any suggestionthat it was involved in fixingrates would have resulted in rapidgovernment action. Some individ­uals complained that limitationsof the bureau's power preventedit from taking the necessary stepsto remedy indusrty problems.

While the formation of the bureauwas a significant achievement, itwas not sufficient to prevent

another large underwriting loss in1964. The Superintendent ofInsurance Report for that yearshowed a loss of$50 million forfire and casualty companies,compared with a $68 million lossin 1963. The report expressedconcern that the industty hadrecorded losses in six of the lastten years dUring which totalunderwriting gains amounted to$61,000,000 and losses to$240,000,000: losses exceedinggains by $179,000,000. It alsoemphasized the time had come toeither adjust rates upward orreduce the claims and expenses,or both. The Superintendent ofInsurance welcomed the estab­lishment of the Insurance Bureauofcanada as a forum in whichthe necessary cooperation mightbe secured.

In commenting on the seriouslosses incurred in 1964, CUAPresident H. Douglas Coo stated:Ihave never considered myself apessimist but must admit that attimes during the past year I've feltlike a discouraged optimisr, felt as ifwe were in a race with catastropheand wondered whether we werelosing it. One can cenainly be pessi­mistic about the continuing disas­trous underwriting results ....Depressing as the siruationappeared, there were some opti­mistic signs. The underwritingloss in 1964 was a third less thanthe figure of$78 million for 1963.Some steps had been takentoward the narrowing of thecommission gap between theCUA and its competitors after theIndependent Insurance Confer­ence reduced its commissionscale and a number of indepen­dent companies followed suit.This contributed to savings inacquisition costs for CUA com­panies.During the year, the InsuranceBureau ofCanada made cautiousbut steady progress in promotingstability within the insuranceindustty. Although the long-term

functions of the organizationremained somewhat vague, theconcept of providing a forum forthe discussion ofCommon prob­lems prompted an improved spiritofcooperation. Companies thatfor some reason could not bringthemselves to join the CUA hadthe benefit ofentering into dia­logue with its members, and theCUA likewise benefited from itsparticipation in the IBC. Althoughnot a rate-setting organization,the Insurance Bureau ofCanadaplayed a vital role in bringingcompanies in the industry closerrogether,

Rumours about the fate of theCanadian Underwriters' Associa-

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tion, buoyed largely by companywithdrawals in the 1960s, contin­ued to circulate. Did the advan­tages outweigh disadvantages?Although some began to voicesome doubts, faith in the CUAremained strong, H, Douglas Cooadvised perseverance:Notwithstanding the dire rumours wehear to the effect that the Associationin its present state has outlived itsusefulness, I still believe, and verystrongly, that the Association has inthe past played a most important rolein canada. It was, and I believe it stillis. the greatest force for stability wehave... In common with many otherindustries we are on the threshold of

A. Leslie Ham, Q,C., retired from theposition ofeVA General Counsel in1964. Forty years In Jaw andinsurance, Mr. Ham was a recognizedcanadian expert on both.

a new era. It could be a profitableone for insurers ifcommon sense isallowed to prevail in their relationshipwith one another and in theirapproach to the industry's prob­lems... Ibelieve that if the Associa­tIon continues to look forward,always aware that the ultimate fateof ours will be settled in the market­place, and ifwe do not press thepartlc button in these troubled tImes,we should emerge stronger thanever. It will require all your wisdomand statesmanship to steer ourcompanies and our Assodationthrough the difficulties that mustsurely lie ahead. Nevertheless thiscould be our finest hour.In a January 1965 article in theFinancial Post, fOlmer CUA presi­dent Ralph Sketch argued therewere too many companies com­peting for the insurance businessand this had caused the disas­trous results of the previousyears. The organization of theinsurance industry required amajor overhaul. He advocatedthe fOlmation of a broadly-basedorganization that would handlethe actuarial and statistical serv­ices, public and governmentrelations, inspections, the draft­ing ofunifolm insurance contractfOlms and the negotiation ofticklish problems such as agents'commissions.

Sketch warned that rhe InsuranceBureau of Canada could not be avehicle for such changes. Since!BC membership controlled 70percent of the general business,for it to become a rate-settingorganization would be to invitecharges ofmonopolism andgovernment investIgations. Hedid suggest, however, that thebureau could absorb many of thenon-rate related functions of thenumerous organizations, thussolving the problem ofoverlap­ping services, and spreading thecost of operations over a largernumber of companies. Thischange would be slow in develop­ing as the industry stood on theverge of more profitable under­writing resuits and each cliqueviewed its services as indispensi­bie:

The Independent Insurance Conferen~

ce...likes its comparative freedomfrom dgid controls. The All canadaInsurance Federation is proud of itsability to handle legislative plOblemsand public relations. The Underwrit­ers' Laboratories is expert at testingfire fighting equipment, oil burners,and other consumer products todetermine whether or not they meetsafety standards.(Financial Post, Januaty 1965.)An overall underwriting profitwas recorded in 1965, a weicomechange after two years of majorlosses. Nevertheless, the .06percent profit did little to offsetthe financial catastrophes ofprevious years. CUA membersexperienced a loss of .01 percentduring the year. Interim rateincreases and commission reduc­tions in the automobile businessin 1965 played an important rolein securing the modest profit. TheCUA, both through its corporaterole and its representations onvarious committees, provided theleadership necessary to achievecooperation in the fOlmulation ofthe reqUired rate increases.

Association members wrote33.08 percent of the total auto­mobile premiums in 1965 with aloss ratio of 70.16 percent, com­pared to 31.12 percent of thetotal premiums in 1964 with aloss ratio of 79.33 percent. CUAconsidered and supported theInsurance Bureau of Canada'srecommendation that agents'commissions should be reduced.In cooperation with other bureaumembers, the CUA reduced com­missions in excess of 10 percenton automobile policies by 2.5percent across the country.The industry'S automobile insur­ance activities were periodicallythe subject ofgovernment investi­gations. Inquiries were conductedin Nova Scotia and Alberta andanother announced for BritishColumbia in 1966.

Problems emerged when thereports for these investigationswere not thoroughly examinedand presented. CUA President

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eUA General Counsel and formerNational Fire Protection AssociationDirector, A.L. Ham. presents anNFPA plaque to Air Vice MarshallC.L. Annis. This represented a GrandAward In the Military Division ofthe1963 Fire Prevention Contest.

D.B. Martin commented on theinvestigations:The industry has nothing to fear froman impartial enquiry which elicitsand presents a true picture of thepart our industry plays in the eco­nomic development of Canada.When, however, politiCS, and politi­cians' need for qUick vote stimula­tion, become the dominant factors inan enquiry, then there is a gravedanger ofmisunderstanding (uninten­tional or otherwise), and ofgraveinjustice to an Industry which hasdeserved better of the people ir hasptorected for so long.Political pressure had beenbrought to bear on the industryin general to provide insurancecoverage in certain parts of theparticulariy run-down sections ofthe city ofThronto. The CUAexpressed concern for homeown­ers who were unable to get insur­ance on their property throughno fault of their own. This con­cern was weighed against theweifare of the sharehoiders whosecapital would be risked to insuredilapidated property with obviousfire hazards for more than theproperty was worth. In refusingcoverage, insurance companiestried to do justice to aU con­cerned; by protecting investorswhile attempting to have absen­tee landlords improve the dilapi-

dated buildings and antiquatedwiring systems to upgrade thestandard of risks. Cooperativeefforts of the Canadian Underwrit­ers' Association, the IndependentInsurance Conference and variousagency associations led to theestablishment ofa vehicle forfinding markets for genuine casesofhardship.

In his address at the annual meet­ing, Martin warned that with areturn to profitable underwriting,members must be vigilant againstthe re-emergence of cut-throatcompetition. In briefly reflectingon the role of the CUA, he stated:There is no magic about the constitu­tion of the canadian Underwriters'Association and no special strengththat the Association has which theindividual members have not. TheAssociation exists to help us all makean underwriting profit. If one memberis helped to make a profit at theexpense of aU others, or ifone mem­ber is deptived of the opportunity ofmaking a profit solely to protect theinterests of the others, then theAssociation is not doing its jobproperly. But it can only do its jobthrough a full recognition of commoninterest, through a realization that inspite of the words in the Constitutionand By-laws the Association hasreally no powers of discipline beyondthe self-discipline ofits individualmembers.The slight underwriting profitreported for 1965 continued in1966 when the industry madeprofits of$7. 6 million. This repre­sented a modest profit ratioincrease from .06 percent to 1.03percent over the previous year. In1966, much of the CUA:s energywas taken up with the preparationofa brief on automobile insurancefor submission to the Royal Com­mission ofBritish Columbia. Thiscommission was struck to investi­gate the cost ofinsurance and tostudy the justifications behindthe recent variations in automo­bile insurance, D.B. Martin pre­sented the CUA briefwith theassistance ofEe. Smart and e.L.Wilcken and numerous otherassociation officials. Althoughthe Royal Commission was sup-

posedly convened as a result ofpublic outcry, no briefs wereoffered by individuals or membersof consuming organizations.In 1966, Newfoundland held thedubious distinction of possessingthe highest rate of fire losses inCanada. From 1960 to 1964, theNewfoundland branch of the rCUA recorded premiums of$18,188,327 while insurance Icompanies paid out some$14,307,758 in claims. Thisrepresented a loss ratio of 78.5percent, Significantly higher thanthe national average of 54 per-cent (50 percent being theaccepted level to show a profit).This situation dictated that insur­ance premiums in Newfoundlandhad to be increased to meet risingcosts.

The Newfoundland branch of theassociation released these figuresfollOWing unrelenting criticismfrom the Comer Brook ChamberofCommerce which protested the25 percent surcharge levied oncommercial properties in the city.Losses in Corner Brook ran abovethe provincial average and theCUA enforced the increasebecause the city lacked adequatefire protection, The associationrecommendations for improvedprotection had falien on deaf earssince 1958.

In 1967, Canada celebrated its100th birthday. The organizers ofthe World's Fair, Expo '67, turnedto CUA personnel for fire protec­tion and prevention, engineeringadvice, and inspection and ratingservices. One association officialheaded the Expo insurance pool.The insurance industry as a wholehad good reason to celebrate.Favourable underwriting resultsof the previous year continued toimprove with a profit of $22million. The aggregate writing ofCUA comparties was in excess ofone half billion dollars and theirshare of the market increasedfrom 29.5 percent to 31.5 per­cent. This improvement, in whichCUA members were above aver-age in both rate of profit and

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F. W Pearson. eUA President 1967

D.B. Martin, eVA President 1966,1969

growth, was evident in all majorclasses. The Automobile Depart­ment reported its largest yearlyprofit in a decade. Member com­panies wrote 32.52 percent ofthe total automobile businesswith a loss ratio of 66.27. Therewere, however, signs warning ofa return to the bitter competitionagainst which CUA and otherorganizations had fought for solong.

In 1968, CUA approved a draftconstitution that expanded therole of the Insurance Bureau ofCanada. under terms of theagreement, the bureau absorbedthe statistical division of theassociation and merged with theAll Canada Insurance Federation.IBC became the industry's chan­nel ofcommunication with gov­ernments at all levels and adecision-making body on many

questions of policy. While thebureau was still not a rate-settingorganization, it did fulfill thefollowing functions:Provide a forum for discussion on allmatters in the field ofgeneral insur­ance.Collect, collate, analyze and dissemi­nate aduarial and other information.Study legislation and legislativeproposals.Engage in research and public rela­tions activities.Make representations as may benecessary through whatever seemthe appropriate channels.Maintain high ethical standards andpractices.Promote a better public understand­ing of the business of insurance.(Financial Post, lune 15, 1968.)The head office was establishedin Thronto with a branch in Mon­treal.The CUA made numerous sacri-

fices to establish and develop theInsurance Bureau ofCanada. Oneof these was to appoint W. W.Owen, long-time general managerof the CUA, chiefofficer of thebureau. CUA President DanDamov paid Owen the followingtribute:1b know him is to respect him; to seehim in action is to admire his effi­ciency and dedication, and to travelwith him is to appreciate his bound­less energy. In his person, our Associ­ation has a uniquely talented andthoroughly dedicated leader.Carl Wilcken, actuary to the CUA,had also established an excellentreputation, and he too transferredhis talents to the new organiza­tion. These two moves proved agreat loss to the CUA, but weredeemed necessary for the well­being of the whole industry.

The satisfactory underwritingresults of 1967 stimulated

HOMES OF THE eVA, Montreal: (1) 47St. John Street: (2) In 1893at theBoard ofTrade Building: (3) the Royal Insurance Building. Place d'Armes;(4) the Corn Merchants' Exchange Building, Hospital St.; (5) 1908, to theCoristine Building, 410 St. Nicholas Street. The Dominion Board ofInsuranceUnderwriters, located at (6) 460 St. John Street, merged with the CUA in1958. In 1969, Head Office moved into (7) the 4th floor ofthe CoristineBuilding.

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renewed competition in 1968which caused profits to fall from$50.915,113 to $36,928,998.CVA members watched lossratios increase as their share ofthe market fell below 30 percent.The chairman of the AutomobileDepanment's Executive Commit­tee, F.H. Steben, maintained thatwhile the situation appeared tobe deteriorating, the resuits werenot totally unsatisfactory. Hereminded members of the cyclicalnature of the business: "Whilemore stability has been achievedin respect to loss ratios resultingin some black ink, history isagain repeating itself in thatunbridied competition has againcrept into the business." Hewarned members that calmerheads must prevail and rashdecisions must be avoided.

The association continued tofunction as the single inspectionand rating organization in Can­ada. The CUA staffhad aiwaysbeen one of its greatest advan­tages. in providing the experienceand technical expenise requiredto formulate underwriting deci­sions.ln 1968, associationserv­ices were provided across Canadathrough numerous branch officesand fire inspection service offices.Uke 1957 and 1963, 1969 wasan extraordinary year in theinsurance industry, with lossestotailing over $53 million. CVAPresident R.H. Stevens refused toplace any credence in the factthat these catastrophes occurredat six year intervals. He did,however, recognize the problemsinherent in an industry subject tocyclical trends:Since the close of the year. everyconceivable reason for the resultshas been debated, but one thingaiways stands out following thesectitical years, that it is far more diffi­cult to climb out ofthe hole, than torumble into it.CVA companies showed someimprovement in 1969 as theirshare of the market increased

slightly from 27. 1 percent to27.8 percent. It was apparent,however, that the problems con­fronting the industry persisted. Inthe Properry Depanment, infla­tion proved the greatest enemyby preventing an improvement inunderwriting results at a timewhen losses were increasing. Thedifficulties developed primarilybecause premium increaseslagged behind increases causedby the building boom and eco­nomic expansion in Canada.Hence, loss ratios remained at alevel that proVided little opportu­nity to securing a modest profit.Automobile insurance also suf­fered dUring this period. Monetarylosses were not the onlyproblems confronting automobileinsurers. Government-sponsoredinvestigations eanried out acrossthe counrry revealed dissatisfac­tion with the existing system.Insurers have always been easytargets for critics whose primaryaim is to complain, rather thanoffer better alternatives. In 1969,R.H. Stevens expressed histhoughts on the subject:The Auwmobile Insurance system isfirmly based on Common Law, anduntil the Law is changed, the basicsystem cannot be altered. If compen­sation is to be paid to persons whoat the moment are uncompensated.then costs must increase. If the costsare to be kept down, the compensa­tion must be spread more thinly inorder to pay those who receivenothing under the present CommonLaw system. Whether this simplepremise can be conveyed satisfacto­tily to the mototing public remainsdoubtful. Whether the public wouldwish to have their Common Lawtights modified remains unknown.Personal responsibility for individualacts has been ingrained in us allsince the moment, as children, wewere punished for misdemeanours.The task of changing this understand­ing, and to have it accepted by thepubliC, is indeed very onerous.Stevens argued that althoughmany alternative plans had beenproposed, the real responsibiliry

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R.H. Stevens, eVA President t 1970

DalJ1dDamov, CUA PresIdent, 1968

was to produce a system wherebyprotection would determine theprice.

Some time was taken up at the1969 annual meeting with thequestion of increased flexibility inthe functioning of the association,an issue that had concerned CUAmembers for some time. The196Cs had demonstrated theneed for the canadian Underwrit­ers' Association to adopt a lessrigid approach to attract newmembers to its ranks and allowmembers to exercise greaterfreedom in underWriting prac­tices. President D.B. Maninmade reference to three memberswho left the association in 1968:In one case, the withdrawal was theresult ofa merger and might fairly bedescribed as an unfortunate sideconsequence of it. In the other twocases, withdrawal was probably dueto some impatience at the disciplinesinvolved in continuing membershipand the desire to compete moreeffectively with non-members of theCUA., and also with other Mem-bers...whatever the reasons for thewithdrawals, the fact they had takenplace necessarily involved the Associ­ation taking a good hard look atitself.Under a more flexible framework,participating companies wouldimplement their own ideas, bene­fiting from the collective advan­tages offered by membership inthe association_ During the 1969meering, the membership votedin favour of a report that advo­cated greater flexibility, specifi­cally in the area of policycoverage and premium rates forhomeowners' policies and pre­mium rates on automobile poli­cies. The CUA Council wasdirected to "consider expedi­tiously implementing theincreased flexibility measuresinherent in the report."

No important departure fromtraditional policy in an organiza­tion such as the CUA occurswithout opposition. While oldtraditions die hard, the apparent

need for action carried the votefor increased flexibility in 1969.Opponents charged the commit­tee studying the question withacting too qUickly. Cries ofopposi­tion included: "This Committee isreflecting panic over a couple ofwithdrawals!"; "Deviation is forthe birds."; "\o\e'll be at the mercyof the agents." The need toreverse the declining membershipwas, however, imperative, partic­ularly in light of the drop in mem­bers' market share to 27.1percent from 31.5 percent theprevious year.

Pressure was constantly appliedto loosen the organizationalstructure of the CUA, allowing forgreater regional differences. DanDamov, who fonned part of thecommittee considering the prob­lem, commented on the difficul­ties ofadhering to a single set ofCanada-wide rules:.. .it is recognized by most otherbusinesses, it is a fact in the market­place. The characteristics of themarket in the province of Quebec arenot the same as Nova Scotia, and weshould be able to respond to differentconditions.(Canadian Insurance, August 1969.)This was particularly true in thecase of member companies in

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Britlsh Columbia. There theyfaced strong competition fromcompanies unique to the westcoast of North America. Theselarge companies were becomingincreasingly aggressive and mem­bers of the BC branch of the CUAfound themselves hard-pressedto compete while remainingwithin the rules established bythe association.

Damov acknowledged the valu­able role fulfilled by the associa­tion but suggested the CUA:srate-maltlng activities in personallines were no longer as importantas they had been. Companiesabove all needed the freedom tocompete. Introducing a newelement of flexibility would, infact, strengthen the association'sposition.If the members, as individual com­panies prosper, if they increase theirown share ofthe market, then loss ofmembership to the eUA is much lesssignificant. If, however, being amember of the eUA is inhibiting thegrowth of individual members, thenthe Association is not usefuL(canadian Insurance, August 1969.)The 1960s was an extremelyttying decade for the association.Despite a number of resignations,the CUA continued to providestrong leadership in the industry,as demonstrated by the fonnationof the Insurance Bureau ofcan­ada. The ability of the associationto survive ten years of vacillationbetween modest profits andsubstantial losses was largelyattributable to its willingness toadapt to prevailing conditions.The importance ofchanging withthe times was made clear in the1969 remarks of Dan Damov... .it (the CUA) is a living organism.\oVe are in a business that is changingconstantly. and it is a maUer ofadjustment to present day require­ments. What the CUA was 2S yearsago was entirely different from whatit should be wday, and not necessar­ily relevant to what it should betomorrow.(Canadian Insurance, August 1969.)

"Our fIreprotection school in session," from the eUA Inspector, front cover,July 1963.

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inspector

Summer

JULY. 1963

VOLUME 1 NO.3