The times. [volume] (Washington [D.C.]) 1897-1901, 1901-05-04
NO INSURANCE TRUST.
The Difficulty of EFecting Any Re
liable ConsoIidatiou


NEW YORK, May 3-Weu-informed
underwriters in this city have decided
that an insurance trust is wholly i'm
! practicable and could never be main
tanned. While the subject has been dis
| cussed before, the advisability of operat-
| ing a dozen companies under one man.
| agement has lately been brought to the
| attention of local insurance men in the
] interest of a mammoth concern. The pro-
, posal is interesting, but those who have
| studied the problem point out that insur-
| ance is the only business of cash as
sets where outside capital can be at
| tracted at moments notice. and since
| 1t takes but a few weeks to put new
| companies into the field, it would be ex-
ceedingly difficult TO restrict competition
or effect the economies possible in other
lines of business. Then. too, the agency
problem is another drawback, for a COM
pany can seldom retain its risks without
the consent of the representatives In the
| field For this reason, the community Of
interest" plan is less applicable to nsur-
ance. and, with other features of super
visions peculiar to the business. no cor
poration, however strong, could long
maintain schedule of rates yielding a
margin of profit greater than normal
justify.
Interesting testimony on this line is af-
forded by a. F. Dean, the underwriting
expert of Chicago, in his well-known
treatise on the Rationale of Fire Rates
Concerning the trust proposition, he says:
While it might be possible to consoli-
date the capital, it is not possible to con-
solidate the business of two or more COM
panies, because the business is the prop
erty of the agent, and cannot be trans
ferred by one company 10 another with
out the agents consent. The interests of
rival agents conflict at every turn. At
the close of year of unusual profits the
fact is known all over the world within
sixty days. This publicity prevents any
possibility of concealment of any mate
rial fact, and in this publicity the people
have an absolute safeguard against mo-
nopolistic rates. There are no protective
duties against the importation of fire in
surance. Companies come to us freely
from all parts of the world The annual
exhibit of American fire insurance is
watched in Europe, Asia, and Australia
where other companies stand ready to
come over and set up shop whenever
profits will justify it, and profits do not
need to be very large to satisfy companies
here. Under these competitive conditions
the impolicy of maintaining rates so high
that they act as a lodestone for compe-
tition is obvious
There is another r2aScn why insurance
cannot be brought into a trust An ordi-
nary manufacturing trust needs not only
skill and capital. but the capital must be
tied up In permanent buildings fran /
chises, etc, which. in case of failure, may |
become 50 much dead property. In fire |
insurance capital does not lose it's mobil- |
ty. 1t remains convertible capital which |
can at any time be turned into cash. The |
law requires this. The company's assets |
at all times consist of cash or it's equiva- |
lent, and it's only liability outside of I'M |
paid losses is for unearned premiums, for |
which it holds the cash. and this labili- |
~ can always be disposed of by the sim |
pie process of reinsurance in another |
company. No other important industry |
can be started or stopped with so little |
loss of time, or so little danger of being |
tied up with unstable property; and this
fact enables capital TO flow into and out |
Of fire insurance with greater promptness |
tnan perhaps in any other industry This |
instant response of competition applies |
especially TO capital already engaged in the !
business, for competition is constantly |
shifting from class to class. Every period |
of low cost with a given class sets many |
into active competition for the |
class
In addition to this ceaseiess war of cap
ital, internal and external, the law recog-
nizes the transaction of fire insurance |
without capital. Mutual insurance alone
would be permanent estoppe to trust
methods in fire insurance. There can
never be monopoly In rates so long as
the law recognizes the mutual plan of in
Surance and the public viii patrouize it,
1t may be claimed that nIltuaiS do mt
furnish reliable indemnity, and that they
almost invariably end in disastrous failure
No one familiar with the history of these
concerns will dispute this. but IL only az
fords another proof that rates are so low
that skill. experience, economy in man
agement. and sufficient capital TO bridge
over periods of high cost ratio are the es-
sentials to success. II this were not So !
mutual companies would surely and swift
~ monOpolize the fire Insurance business
Of the country"