The steady rise in the cost of your homeowners and auto insurance is prompting the industry to think about how this essential coverage might be sold more cheaply.
It's not just the rising cost-per-$1,000 of coverage that dents your budget. It's also the need to buy ever-rising amounts of coverage. As the price of building and repairing houses goes up, homeowners need more insurance against fire and other damage. As medical costs rise, drivers need more insurance to pay the bills of anyone they might injure.
The traditional system of selling auto and homeowner policies, through individual insurance agents, is expensive. It is far more efficient to sell through companies, large and small, to all employes at one. Sales pitches can be made to employe groups, on company time, and premiums paid through automatic payroll deductions. Under this system, an individual agent can handle many more customers at one time.
A few insurance companies sell through the corporate market. Policies are packaged either as an employe benefit, sold at group rates, or as individual policies, with each employe charged according to his or her own category of risk.
Bankers Life of Des Moines sells individual auto coverage through 140 companies, and homeowners coverage through 50. The employer contributes part of the payment, ranging from $3 to $8 a month per employe. Travelers Insurance Co. has about 230 company plans, calling for no corporate contributions.
Price savings to the employe come both from the corporate contribution, if any, and from the fact that it's cheaper for the insurance company to collect premiums through payroll deduction. Aetna Life and Casualty offers group automobile policies to employers in nine states, so far. There are four categories of risk, and group rates for each category. The cheapest rates go to employes with one car and no youthful drivers, and the most expensive to employes with more cars and multiple youthful drivers. An employe who leaves the company can convert automatically to individual coverage, although not at the same price.
Prudential Insurance Co. is now experimenting with two grouup auto policies. Prudential's rates include such variables as the kind of car you drive and your driving record. If an employe has an accident, the amount of his or her insurance protection will drop for a period of time, so that one bad driver won't increase the rate for the group as a whole.
Both Prudential and Aetna require employer contributions to the plan. Neither company, as yet, offers homeowners coverage.
One stumbling block for group auto plans is that each state has different laws affecting coverage. Arthur Ericson of Prudential told my associate, Virginia Wilson, that only 20 to 25 states permit group plans at all.
Another problem is that group auto and homeowner policies are among the benefits that can be administered by the typical union trust fund. Nor are they tax-qualified as employe benefits, which means that any employer contribution to their cost is taxable income to the employe.