The booming American economy following World War II forced the traditionally conservative insurance industry to create new products. One such product, the home owner’s policy, was an early example of a single policy that protected against multiple hazards—a type of policy that would become a major segment of the consumer insurance business.
The Insurance Company of North America (INA), a company with a reputation for innovation, made insurance history in September of 1950 by introducing its famous home owner’s policy. It offered a complete shield of protection for the home, which was most people’s single biggest lifetime investment. In offering this new type of policy, INA was responding to changing conditions brought about by World War II and its turbulent aftermath.
When the war ended
The federal government had several motives for stimulating home building. For one thing, legislators wanted to reward veterans for the sacrifices they had made for their country. In addition, residential construction was an important element of continuing prosperity because it generated many different kinds of jobs. It created employment not only for carpenters and practitioners of other building trades but also for lumber workers and others whose products and services related to home construction. Once a house was finished and its new residents were ready to move in, they had a need for carpets, drapes, furniture, appliances, and all manner of other home furnishings.
New housing tracts in the developing suburbs created needs for streets, sewers, streetlights, shopping centers, fire and police stations, and schools. At one time, Los Angeles County was adding the equivalent of one entire new school to its public school system every day. All these needs created jobs, and jobs created prosperity. Because so many residents of the new housing tracts were dependent on automobiles for transportation, the phenomenon of the two-car family became commonplace in the United States. This created the greatest boom in automobile manufacturing the country had ever seen.
The federal government made home ownership easy for veterans through the Servicemen’s Readjustment Act
For about twenty-five years, from the end of World War II until President Richard M. Nixon
The entire American landscape changed radically after World War II. Builders created enormous tracts of houses in the suburbs, where land was cheap and easy to build on. Farms, orchards, and grazing land gave way to houses. The term “bedroom community” was coined to describe this new phenomenon of areas consisting mostly of housing, with little business activity. Automobiles made it feasible for young home owners to commute to jobs in the cities, perhaps also finding entertainment there, then come home to sleep. Major cities across the country were transformed from relatively compact entities into sprawling conglomerations of houses, shops, restaurants, offices, and parking lots. The term “urban sprawl” was coined to describe this new phenomenon.
Businesses of all types competed avidly for the trillions of dollars to be earned from all this activity. The so-called “old-line” insurance companies, such as the Insurance Company of North America, suddenly found themselves confronted by aggressive competitors such as State Farm Insurance Company, Farmers Insurance Company, and Sears Roebuck’s successful Allstate Insurance Company.
The old-line companies historically had dealt with independent agents who worked on commission. The new competitors were called “direct writers” because they employed their own agents, who could sell only their company’s policies. The newcomers to the insurance business could sell their policies cheaper because they paid their agents lower commissions and had streamlined other aspects of insurance such as claims adjusting. Independent agents hated and feared these cut-rate competitors, contending that they were not truly representing their clients but instead favoring the companies they represented.
In an attempt to remain a step ahead of the competition, the prestigious Insurance Company of North America relied on its greater underwriting expertise to offer innovative new policies, such as its home owner’s policy. In hindsight, the innovation was of obvious benefit to home owners, but companies previously had concentrated on selling the various types of coverage included in it as separate policies.
Breaking with tradition, INA introduced the independent insurance agents of America to a new concept, a multiline policy that would cover a home owner against almost anything that could happen to a house or on a home owner’s property. Because a house was the most valuable purchase the average American would ever make, home owners wanted assurance that they would not be wiped out by some unforeseen event. A lawsuit not only could strip a home owner of everything he or she owned but also could cause debt that would take a lifetime to repay.
INA’s home owner’s policy offered coverage against damage to the home or its contents caused by fire as well as extended coverage against such forces as lightning, hail, windstorms, explosions, riots and civil commotion, aircraft, land vehicles, and smoke. The policy also included residence theft insurance and provided for legal liability for accidents on the premises and medical care for injuries to visitors. The package policy was about 20 percent cheaper than the total value of all the separate policies that would have to be purchased to obtain the same coverage. It was an immediate success.
INA’s home owner’s policy had a powerful impact on the insurance industry because of the issuer’s power and prestige as the largest and oldest company of its kind in the United States. The revolutionary new concept of a multiple-risk policy, to be introduced throughout the country, created a new era in the insurance business. Many other companies were forced to follow INA’s leadership to stay competitive. State Farm, Farmers, and Allstate soon had their own policies on the market, along with old-line companies including Aetna and Travelers. Generally speaking, the old-line companies, including INA, were the innovators, while the direct writers followed their leadership but offered lower rates.
Once the precedent had been established of writing so-called “multiple-line” or “multiple-hazard” policies, it was inevitable that INA and its competitors would begin offering other creative insurance packages to consumers. Businesses had long protested against the complicated and expensive insurance needed for protection against all the financial hazards involved in running even a small business. Soon INA and its competitors responded to this complaint by offering comprehensive fire insurance policies as well as tremendously popular comprehensive public liability (CPL) insurance policies.
CPL policies covered a business for injuries sustained by customers on the premises, for injuries or property damage caused by its employees away from the premises, and for all company-owned automobiles and trucks. A business that hired new employees, acquired new properties, or added new motor vehicles to its fleet during the policy period was automatically protected. The insurance premium would be adjusted annually on the basis of an audit.
All these policies made things easier for businesspeople as well as for home owners. The package policies were created as a result of the demands imposed by an expanding economy of unprecedented proportions, and they helped encourage further expansion of the economy by generating the confidence people needed to invest their money in real estate and business enterprises. Home owners no longer needed to lie awake wondering what would happen if a neighbor’s child drowned in the home’s swimming pool, the family dog attacked the mail carrier, or a visitor fell down the front stairs. A businessperson could feel free to accept the many opportunities for profit that arose in the prosperous economy without having to worry about such petty matters as whether a vacant lot could safely be rented out during December to be used for selling Christmas trees; he or she knew that insurance coverage extended to any conceivable liability hazard not specifically excluded by the business’s insurance policy.
The home owner’s policy was also welcomed by banks, savings and loan companies, and other lenders because it offered them protection for their own financial stake in the residential real estate market. Previously, if a home owner sustained a catastrophic loss not covered by insurance, he or she might be forced to abandon the house, leaving it up to the lender to repossess it. Most homes in America at the time were being purchased on long-term mortgages. GI and Federal Housing Authority (FHA) loans typically were written to be amortized over thirty years, so mortgage holders retained significant stakes in individual homes for many years.
Home owner’s policies helped accelerate the building boom by providing better protection for the lenders who made home ownership possible. Furthermore, by providing cheaper coverage, they lowered the home owner’s total monthly outlays for principal, interest, taxes, and insurance (PITI), which were usually included in one payment to the mortgage lender. This made it possible for some marginal buyers to own their own homes, adding further fuel to home building and the economy in general.
Other innovations in insurance included new worker’s compensation package policies that covered all types of employees under the same policy and automatically covered new employees hired during the policy period. Important in all the insurance innovations of the period was the concept that competitive forces and government intervention were forcing insurance companies to respond to consumers’ needs rather than forcing the consumers to respond to the traditionally rigid requirements of the conservative insurance companies.
Insurance agents welcomed the new package policies. They were much easier to sell because they were easier to explain. Agents were relieved of the unpleasant task of apologizing to a client because an unforeseen loss was not covered by any of the single-risk policies the client held.
Insurance became increasingly streamlined and modernized, starting in the 1950’s, through the leadership of such American companies as the Insurance Company of North America. Companies found that they had to offer policies and packages that were competitive with those of other companies as consumers became more educated about insurance and learned to shop around for the best price.
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“Big Day in Property Insurance.” Business Week, July 10, 1948, 20-21. Discusses the dramatic impact of the McCarran Act on the insurance industry. Federal antitrust laws became applicable to insurance, creating greater competitiveness in the industry and paving the way for innovative new package coverage such as INA’s home owner’s policy. -
Carr, William H. A. Perils, Named and Unnamed: The Story of the Insurance Company of North America. New York: McGraw-Hill, 1967. A comprehensive history of the Insurance Company of North America as an innovator in the insurance world, with many references to the development and acceptance of its home owner’s policy. The best book-length history of the company, written in an informal style and containing numerous interesting anecdotes. Helpful bibliography. -
“INA Ties Itself into a Package.” Business Week, January 9, 1965, 52-58. Describes how INA was radically restructured to handle package policies more efficiently. Covers such matters as agency relations, underwriting, setting of risk standards, and claims adjusting. Explains how expanding markets forced radical changes in the traditionally conservative insurance industry. -
James, Marquis. Biography of a Business, 1792-1942: Insurance Company of North America. Indianapolis, Ind.: Bobbs-Merrill, 1942. A corporate history that received critical praise for its scholarship and congenial style. -
“160 Years Young.” Newsweek, April 13, 1953, 78-82. A brief history of, and tribute to, the Insurance Company of North America, emphasizing some of the personalities influential in its development and describing the new competitive conditions in the insurance industry that were a striking part of the booming postwar American economy. -
“Packaged Policies Catch On.” Business Week, September 30, 1950, 100-102. Written shortly after the Insurance Company of North America announced the introduction of its new home owner’s policy. Discusses the reaction of businesspeople, the general public, independent insurance agents, government insurance regulators, and executives of competing insurance companies. An excellent overview. -
“The Underwriters: When the Supreme Court Said Insurance Was Commerce, Their World Turned Upside Down.” Fortune 42 (July, 1950): 77-81, 108-114. An excellent article describing the changes taking place in insurance as a result of recent government rulings. Contains photographs of many of the leading insurance executives of the day. Accurately forecasts the turbulent future of the insurance industry in the United States. -
Zevnik, Richard William. The Complete Book of Insurance: Understand the Coverage You Really Need. Naperville, Ill.: Sphinx, 2004. Comprehensive overview of all types of insurance coverage; includes a chapter on home owner’s insurance, as well as chapters explaining the function of insurance within the U.S. economy and examining the insurance industry as an industry.
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