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Steady Rates

October 04, 1987

The Times had an interesting article on Sept. 20 titled "Insurance Insolvencies Soaring; Early '80s Price-Slashing Spree Blamed."

From 1979 to 1983, when interests rates were high, many companies cut their rates to the bone to get money in the door to invest. They knew that the premium they were charging would not cover losses and expenses to be paid under those policies. By cutting prices they hoped to increase their market share. They also hoped that the investment income would offset the losses. For many companies this hope did not come true. Since 1983, 95 insurance companies have become insolvent.

The article stated: "Insurance commissioners are trying to find a way to control the wild swings in insurance prices that occur when plenty of money is available for coverage and investment opportunities look promising."

More emphasis needs to be put on providing a floor on insurance premiums so as to prevent these wild swings. Insurance companies need to be protected from themselves.

People do complain about high insurance rates, but competition from the 3,461 property and casualty insurance companies in the United States will keep premiums down to where they should be considering the losses and expenses that have to be paid by the insurance companies.

I hope that when people start to say there is no competition in the insurance industry, they will look back at all the insurance companies that became insolvent since 1983 from too much competition.

HARRY D. BOYD

Senior Vice President

Harbor Insurance Co.

Los Angeles

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