The Vermont watchman. [volume] (Montpelier, Vt.) 1883-1911, 1893-02-08
Co Insurance Defended.

Editor of Wdtchmdn:- have, after read.
ing your editorials on co-insurance felt that
you have fallen into the same error of lnany
Others e., OF not fully understanding The
principles governing reinsurance, and you
have gone little beyond, and, after assum.
ing that you did fully understand all rules
and the principles which govern co.insur-
ance as well as the clause itself, have
blamed the companies for their method Of
raising and regulating rates.
You say, " Ii the companies have not been
charging reinunerative rates, they should
raise them nun fashion and business fash.
toh." Now L feel as though, by way of the
plan OF reinsurance, that IL is the farest
way to both the companies and the insured
to raise rates, though l do not attempt TO
Claim that the percentages of rates charged
Tor the different percentages of insurance is
correct (that, the companies claim, is based
upon their past experience). All l do claim
Is that the principle itself is correct.
After an explanation OF the principles
which govern this clause no man can or will
fairly claim that the principle itself is not
correct, as 1t allows man TO continue at
past rates, or, If the percentage OF insurance
he chooses to carry is enough, to reduce the
part rate and only increase the percentages
OF rate where the percentage OF Insurance is
reduced. This rule largely APPLIES only
to mercantile and malufac uring proper
ties, az only on such properties companies
can afford to insure to say eighty or ninety
per cent OF their present cash Udlue, II
they are productive. If they are not pro.
ducive, they cannot afford to insure them
at all.
IL cannot be denied that an increase of
rates Is III some manner necessary, and that
the co-insurance plan is the fairest way TO
the insured is, think, true. Take the fol.
lowing example: Suppose you own prop
erty valued al So 900, aud you insure same
for $4,000, aud you have loss of $1,000,
,l,lt Inn Il ~ inc,
would contribute one-fourth of your loss,
or $3.50 each; had you but So, 900 Insurance
each one thousand dollars would contribute
| one-third your loss, or S333.33A each; had
you but 81 600 insurance. each one thousand
dollars would contribute one-half your loss
or $500 aud had you but 81 900 Insurance.
that Insurance would have had to pay your
entire loss of 81 COO. In the first case the
companies percentage of loss was twenty
hve per cent; in the second case il was
thirty-three and one-third per cent, in the
fourth case 1t was fifty per cent, aud in the
last case it was one hundred per cent, while
| your percentage OF loss in each case was
twenty per cent. This, think, shows plainly
That as you cut down your percentage of in-
Surance the remaining insurance stands a
chance OF an increased percentage of loss,
Tor when the companies in the past re-
celved no pay, aud under the reinsurance
rule the companies do get paid by way of
an Increased premium for the additional
chances Of an Increased percentage of loss
they would be compelled to pay on partial
losses by reason of your decreased percent
age OF contributing insurance.
And the companies do not require you to
carry any more insurance than you choose,
but base your rate upon the percentage of
| insurance You agree to carry when you lake
the insurance, and attach to your policy
(only when you choose to take advantage OF
the lower ratt) an agreement Called co in
surance clause) stating that the premium is
based on an agreement that you will carry
the percentage of insurance which you
agreed TO carry and that the companies
shall not suffer any Increased percentage of
loss by reason of your failure TO carry the
percentage OF insurance you agreed to carry
when you took The insurance; and if you do
| carry the percentage as agreed your loss
will DO paid in full, up to the amount OF the
insurance. Co-INsURANCE.