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

NEW YORK, May 3.-Well-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 advisabllity of operat-
| ing dozen companies under one man
agement has lately been brought to the
| attention of local insurance men in the
] interest of 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 a moments notice. and since
| 1t takes but a few weeks to put Ilew
companies into the field, 1t would be ex-
ceediDgly 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 insur
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
loss ratio and expense account would
justify.
Interesting testimony on this line is af-
forded by A. +. 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 CONSOLE
date the capital. 1t is not possible to con-
solfdate 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 to another with
out the agents consent. The interests of
rival agents conflict at every turn. At
the close of a 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 !
where interest rates are much lower than |
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 -caccn why insurance |
cannot be brought into 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 so much dead property In fire |
insurance capital does not lose its mobili- |
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 its euIiva-
lent, and its only liability outside of I'M
paid losses Is for unearned premiums, for |
which 1t holds the cash. and this liabiIi-
ty 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 |
lied up with unstable property: and this
'act enables capital TO flow into and out
of fire insurance with greater promptness
nan perhaps in any other industry This |
Instant response OF competition applies
especially to capital already engaged in the |
business. for competition is constantly |
'uu tiilB from Grass TO class. Every period |
If low cost with given class sets many |
companies into active competition for the
lass.
In addition to this ceaseless war of can
tai, internal and external the law recog-
nizes the transaction Of fire insurance
without capital Mutual insurance alone
would be permanent estoppel to trust
methods in fire insurance. There can
never be monopoly in rates so long as
he law recognizes the mutual plan of in
'urance, and the public viii patronize it,
Il may be claimed that mutuals do not
urnish reliable indemnity, and that they
lmost invariably end in disastrous failIre
No one familiar with the history of these
concerns will dispute this. but IL only af-
ords another proof that rates are so low
hat SKILL experience, economy in man.
Igement. and sufficient capital to bridge
'Yer periods of high cost ratio are the es-
enttals to success. II this were not So |
mutual companies would surely and swift
y monOpolize the fire insurance business
II the country"