Probing to prevent loss: through nonprofit groups it helped form, the insurance industry has taken public its mission to build a safer world.

For more than a century, property/casualty insurers have been doing more about claims than managing them. They also have been researching the root causes of claims and taking action to prevent them, or at least reduce their size.

Today, a handful of nonprofit groups work to promote safer and higher-quality products and to encourage sound government policies that mitigate public risks, thus reducing losses for both insurers and their customers.

The history of these organizations dates back to 1893, when people were flocking to the World's Fair in Chicago. Part of the fair's allure was its Palace of Electricity, which exhibited a source of power with which few people were familiar. Unfortunately, the exhibit was prone to frequent fires. "In those days, nobody really understood the safety ramifications of electricity," said John Drengenberg, consumer affairs manager at Underwriters Laboratories. "In those days, electricity was like rocket science."

In response, the National Board of Fire Underwriters, a now-defunct organization founded by insurers in 1866, sent a 25-year-old electrical engineer from Boston to investigate. The engineer, William Henry Merrill, found a need for research, standards and product testing. He stayed in Chicago and in 1894 formed Underwriters Laboratories, which today has annual revenues of $600 million from tests on 18,000 kinds of products.

Underwriters Laboratories is by far the oldest and largest of nonprofit organizations that sprang up with the help of the insurance industry and are saving both insurers and consumers heartache and money. More recent are the Institute for Highway Safety and its sister organization, the Highway Loss Data Institute; the Institute for Business & Home Safety; and the Certified Automotive Parts Association.

UL today services 33 industries through 6,000 employees working in about 40 locations worldwide. Insurers provided some funding in UL's early years, but revenues now are through product manufacturers' fees to have their products tested and to earn the UL seal. CAPA similarly collects fees for its seal on automotive body parts, but it also derives 45% of its revenue from 13 large insurance companies that collectively have the vast majority of the automobile insurance market, said Executive Director Jack Gillis. CAPA's annual budget is about $6 million, he said.

The Insurance Institute for Highway Safety has a 2004 budget of $12.4 million, while the Highway Loss Data Institute's is $2.4 million. They are wholly funded by 69 auto insurers. The Institute for Business & Home Safety has a $3.5 million budget and employs 22 people, primarily engineers and communications specialists. Harvey Ryland, president and chief executive officer, said revenues are almost entirely from the institute's 124 member insurance and reinsurance companies. Their contributions are prorated based on net written premium in lines in which the institute can reduce losses, he said.

How much these organizations save the insurance industry isn't easy to track, but the savings are certainly far more than what the industry pays to keep them operating.

"They are very good at dealing with large, broad issues that are hard to quantify on a daily basis, but obviously provide long-term benefits," said Chuck Chamness, president of the National Association of Mutual Insurance Companies. "The Institute for Highway Safety, for example, is a big success story. It has an incredible facility outside Charlottesville, Va., and I've witnessed a couple of crash tests there." Tests at that facility have brought about "measurable improvements" to autos over the years, he said.

Similarly, the Institute for Business and Home Safety serves the homeowners insurance industry through research in loss control and mitigation, resulting in the likes of hurricane-resistant buildings, hail-resistant roof shingles and better building codes, said Chamness. "These kinds of large issues, and part of the benefit of all industry associations, is that we can bring together the whole industry and work as a group in a way that no single company can address," he said.

Chamness said his association works informally with its members to build awareness of what these organizations do and the value they bring to the industry. "In some cases, we introduce them to each other as a way of encouraging membership," he said. "We also have a presence on the boards of two of the institutes.

"This is an industry that measures progress over years and decades, and so what these groups do is beneficial," he added. "It goes to the bottom line of the industry and consumers."

Key Points

* Underwriters Laboratories issued some 19 billion UL Marks last year and generated about $600 million in revenue.

* Newer organizations supported by insurers work on budgets tiny by comparison, but are positively affecting public safety.

* Effective work by these organizations can reduce claims for insurers and premiums for policyholders.

* The organizations seek to protect people and real property from earthquakes, hurricanes, tornadoes, wildfires, erosion, auto accidents.

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Frontal Crashworthiness Ratings, 1905 to 2003

In 1995 and 1996, half or more of vehicles tested earned marginal or poor ratings in the Insurance Institute for Highway Safety's 40-miles-per-hour frontal offset crash test. By 2002 and 2003, all vehicles were rated good or acceptable, evidence that the institute has made a contribution toward safer autos.

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