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Auto insurers base premiums on actuarial tables showing the frequency of claims made by policyholders classified by such factors as age, sex, marital status, occupation and even neighborhood. People who get socked the hardest are those who are single, under 25 (particularly young men), residents of central cities and who work as laborers, waitresses or musicians or who serve in the armed forces. Since a small percentage of people account for an inordinate number of claims, actuaries figure that if a client makes a claim, the statistical chances rise that he will make another, and so his premiums rise to reflect that risk. Consequently, many agents echo the advice of fellow Broker George Peters in Newton, Mass.: "Buy insurance to cover you for that one catastrophe. Don't put in for small claims. It's the frequency that hurts."
These practices have helped the profits of property and casualty insurers, which have soared in the past few years. Aetna, a giant in the group, raised earnings per share from $1.90 in 1975 to $7.76 in 1977, and is likely to clear $8 this year. President William O. Bailey readily admits that Aetna's rates will jump ever more sharply for people who suffer accidents or losses.
In setting rates, insurers must guess at their future costs of settling claims.
They tend to estimate on the high side to make sure that they have enough in the kitty to pay off. State insurance commissioners struggle to decide just what rates are reasonable, but these bureaucrats are hampered by their lack of actuarial knowledge.
Some states have lately begun to forbid property and casualty insurance companies to drop a policyholder for three years after he suffers a loss or accident. Going further, Metzenbaum is considering federal legislation forbidding insurance companies to cancel or refuse to renew policies unless a person runs up a long record of claims for mishaps that are his own fault. That would help to still the protests and make claimants feel that, whatever their bad luck, they were at least getting a fair shake.