Encyclopedia of the Great Plains

INSURANCE

The Great Plains insurance industry has a spirit and tenacity that reflect the speculative and adventurous nature of the region in which it was born. The Great Plains insurance industry was created by losses from prairie fires, lightning strikes, and windstorms. Other forces such as the uncertainty of crop prices and cattle prices as well as the high costs of farming operations led to the organization of a substantial part of the agricultural community into the Grange and Farmers Alliance movements. From these issues and organizing movements many Great Plains insurance companies were started. Other insurance companies were formed on the principles of cooperation, mutual aid, benevolence, and care for others. Most provided an alternative to the eastern stock insurance companies, which did not understand the Great Plains conditions and whose insurance coverage was unaffordable. Some of the early companies still in business today are Portage Mutual (Manitoba, 1884), Northwest German Farmers Mutual Insurance (South Dakota, 1887), Farmers Alliance Mutual (Kansas, 1888), Kansas Mutual (1895), Wawanesa Mutual (Manitoba, 1896), and the Oklahoma Farmers Union (1907).

In 1998 the Great Plains insurance industry consisted of more than 600 domestic companies writing $35 billion in U.S. property and liability insurance, $133 billion of the U.S. life insurance premiums, and more than $1 trillion in life insurance. There are 87 domestic Prairie Province insurance companies out of more than 200 general Canadian insurance companies. The Canadian companies insure $4 billion worth of Great Plains property and liability (21 percent of the Canadian total) as well as $1 billion in accident and sickness and $3 billion in life insurance.

Losses in the Great Plains are caused by tornados (there were 508 in 1996, or 44 percent of the U.S. total) and strong winds, but the most significant losses result from hail damage. Great Plains property premiums have escalated due to hail losses to real property and autos. As a result of high losses, some companies withdrew from the Great Plains property insurance markets. However, since 1993, most Great Plains insurance companies have become profitable with an acceptable adjusted loss ratio and net investment income. The Great Plains insurance customer continues to receive a high level of service from the insurance industry, and the cost of insurance continues to remain below the U.S. average, with annual auto insurance expenditures of $523 versus the national average of $665. Healthcare costs continue to increase; however, health-care insurance premiums are below the national average. For example, the Great Plains average hospital cost of $749 per patient day in 1999 was well below the U.S. average of $968.

The insurance industry makes a significant contribution to the Great Plains economy: $340 million in life insurance premium taxes and $1.14 billion in property and casualty insurance taxes are paid annually. As employers, Great Plains insurance companies also pay Social Security taxes as well as other taxes, licenses, and fees. The economic multiplier effect results in a substantial economic contribution to the Plains economy. The insurance industry output averages about 2 percent of each state's gross state product.

Changes in U.S. agricultural policy and world agricultural markets have forced Plains farmers to proactively analyze grain markets and manage crop revenue. New crop insurance approaches provide multiperil insurance coverage for crop revenue and market price fluctuations. National and global competition is forcing a revision in underwriting models for personal and commercial lines as Great Plains insurance companies continue to look for better methods to provide affordable and profitable insurance. Technology changes are revising marketing practices as direct marketers such as the USAA Group strive to take advantage of electronic databases and electronic marketing opportunities.

The Great Plains agricultural community, which established the Great Plains insurance industry, continues to decline in employment and in proportion of total value added. It has been replaced by economic clusters of airplane manufacturing, mining, petroleum, and various light global and domestic industries throughout the Great Plains region. In general, the Great Plains continues to be served by domestic insurance companies and independent agents, particularly in the commercial lines, but the trend is to increase personal lines market share by direct writers and national insurance companies. Insurance companies will continue to consolidate, to merge with banks, to demutualize, to market across national boundaries, and to engage in electronic commerce. These trends will challenge the domestic Great Plains insurance market and may ultimately alter the state regulatory management of the industry. The resiliency and tenacity of the Great Plains insurance industry founders will need to be remembered if these challenges are to be successfully met.

James A. Stephens Emporia State University

The Fact Book 1998: Property/Casualty Insurance Facts. New York: Insurance Information Institute, 1998.

Facts of the General Insurance Industry in Canada. 24th ed. Toronto: Insurance Bureau of Canada, 1997.

1997 Life Insurance Fact Book. Washington DC: American Council of Life Insurance, 1997.