Insurance the "American" Way

Whether or not a given type of carrier is doing business in the American way depends upon the definition of the term "American way." No one definition of the term would be generally accepted. Under some definitions, only state funds would be excluded. Under others, mutuals and reciprocals also would be excluded. Still other definitions would exclude Lloyd's of London. Other definitions, however, would include all carriers doing business in the United States today. Pay your money, and take your pick. The authors are inclined to believe that there are good Americans at the head of all types of insurance carriers.

Definite Cost

Another argument often presented by representatives of stock companies is that the cost of the individual health insurance in stock carriers is definite. Their policy is not subject to assessment. But the definite-cost argument does not apply exclusively to stock companies. Many mutuals are qualified to issue non-assessable policies. For example, a typical clause found in a number of mutual policies reads: "This policy is non-assessable, and the liability of the named insured to the company is limited to the payment of the premium herein prodded."

Some stock insurance company agents argue that all mutual policies are assessable irrespective of a policy condition to the contrary. A number of court decisions are on record, however, to disprove this contention. There is no general or automatic assessment liability. Also, some stock agents argue that even though contracts are non-assessable in one state, they might be assessable in another. There is no evidence to support this claim, either.

In theory, at least, some buyers find an assessment feature in a contract an advantage. The assessment privilege gives the carrier additional financial strength. Under the assessment clause the companies can charge an additional premium whenever the original rate proves inadequate. The advantage of the assessment feature, however, is more theoretical than practical, for the task of collecting any sizable assessment would be difficult indeed.

Whether or not a definite, predetermined premium is charged for insurance for pregnancy, for example, is a matter of the type of policy issued rather than the type of company issuing it. Stock companies and many mutuals issue only non-assessable policies. Other mutuals issue only assessable policies, some with unlimited assessment and others with a limited assessment.

By and large, the rank-and-file insurance buyer prefers a non-assessable policy; but assessable policies are not always undesirable. In fact, the factory mutuals charge a more than adequate premium; yet they include an assessment clause in their contracts. The factory mutuals have never had to rely on these clauses, although they do give added strength to the carriers.

A Definite Contract

Mutual insurance contracts may include the following provision: "The company is a perpetual mutual corporation owned by and operated for the mutual protection and benefit of its members in accordance with law and in accordance with the charter and bylaws of the company as now in force and as the same may be amended from time to time."

Stock company representatives sometimes interpret this clause to mean that protection afforded by a mutual policy can be varied during the lifetime of the contract simply by a change in the corporate bylaws. They argue that, on the other hand, the protection offered by a stock insurance contract is clearly defined in the policy agreement and cannot be altered except by court order.

This argument is an exaggerated criticism of the mutual policy. Changes in bylaws will become binding upon policyholders only if these changes are reasonable and then only after the insureds have received notice of the change. If the changes adversely affect the insurance protection carried by the policyholder, they are very likely to be held unreasonable. Upon receiving notice of a reasonable change, the insured, if he disapproves, could cancel his home owner's insurance policy (as an example) and seek coverage elsewhere. The only cost of this action would be a penalty through the use of the short-rate cancellation table, which does not give the insured a full prorata refund of his premium.

If changes in mutual bylaws affect only administrative procedures, they are binding. Stock companies also can change administrative procedures without their policyholders' approval. In the final analysis, policies of advance-premium mutuals are as definite in the rights and obligations of policyholders as are policies issued by stock carriers. In fact, mutual policies usually contain a condition that states: "This policy embodies all agreements existing between the named insured and the company or any of its agents relating to this insurance."

As a matter of fact, since most policies (both mutual and stock) include cancellation clauses, companies, upon giving proper notice, can alter the terms of their policies at any time they see fit. They can terminate one policy and offer a less liberal one in its place.