New-York tribune., 1902-08-24
INSURANCE AND CREDIT.
THE UNDERWRITING SITUATION AND
THE WAY To REFORM IT
the Editor OF The tribune

ID, the Editor OF TIE Tribune.
sir; Abolt d year ago the National Association
= credit Men took a prominent and proper part in
cr,iet Observation-Disclosures not yet successful
j, Congress-for amendment of the Bankruptcy
IsW. and the association has also been gathering
+o- reproduction pamphlet form the views of its
er,Fers as 10 the bearing Of insurance upon credit
n This action The association ntelligently
4;1irent in business. for il is almost truism (al-
though one too little realized) that insurance IS
,eYr 10 transportation essential factor of in
5Bsrrtal and commercial life. The business world
,esrs upon credit, credit rests upon confidence.
confidence rests largely upon insurance and in
surance which not itself prosperous cannot do
its supporting part
: chart compiled ny small but singularly strong
-o-rra7v 20, the purpose OF graphically showing
,ts Own position shows alsC much more. and the
showing is most unhappy. The names Of the los
.or7Dauies lawfully operating in this State 1871
sre placed a column in the order of their ratios
NJ surplus and a second column similarly
ranges the companies OF to-day according their
surplus ratios. But Of those It's companies Of 1871
only twenty-three remain, and within this term
forty-six others have also started and have failed
The present lisr consists of the surviving twenty
three Oc Jhe old one, plus another twenty-three
which have started since IS1 and have held on
out OF Ia companies existing in 1871 or started
since rs have gone cut. with SSo000 600 Of capital
The majority did go out by insolvency but they
did by nun-success and discoura cement: it is cor
rect 10 say that they burned" out
This chart only shows graphically the old but
not well realized fact that this Indispensable helper
OF all other interests IS itself I'll kept. The as
sociated credit men and their principals should
therefore. feel less concern in improving the
quality Of insurance carried by debtors than I'm in
creasing its quantity; and II is certainly for the
general welfare that the reasons for marked and
unhappy an exception TO the present general pros
peri-y should D. discovered and made known.
Some Of the causes q uor-Success in under
= fundamental SIbiec- To all leIfa-
ton only, not 10 complete removal. The law of av-
erage IN fire insurance covers ! wide area OF time
and admits large fluctuations = gilt edged risk
may burn ana special taken at cut rates may
leave margin 10 the good; the penalty of reck-
lessness does not surely come at once. and as to
any individual instance may never come This
specific ineXactuess makes the really correct rate
schedule ideality and constantly suggests yield
ing 10 competitive demands Hence. associations
have naturally proved futile. To cut q sched-
ole though il be At the lowest notch Of prudence.
means point gained IL present competition, and
the result is not quite certain; company expects
that all the others Will keep the compact and, as
none Is willing be the last, II is usually broken
before the ink is black on the signatures.
Another cause Is that the fundamental impossi-
bity OF complete exactness in rating is made worse
by the constant changes in the physical character
istics Of risks. Buildings have grown both larger
and higher. unbToken floor areas and vertical open
ings have been increasing; stocks OF goods have
also concentrated. Productive operations have
introduced new materials and new processes. So
called freproof construction is not even slow burn
ing; with rare exceptions the American building is
virtually q stove. provided with effective 7Ues and
stuffed with costly fuel Our facilities for quick
alarm and attack are The best in the world yet
the enormous development il this department has
not been able 10 keep pace with the unfavoraole
On the other hand. underwriting is persistently
hurdened with heavy taxation and harassilS inter
ferences. Among others, q virtual lICo!le Id E -
laid t-buJ levied gross receipts instead or on
80 oeoiss{t"Tere also MAKE rhe amazing com
putation that g premiums less loss payments
are prof1ts There is a determined belief that the
business is profitable, but in the decade lSsl 1880 the
underwriting gain IN only four years q VI ana
however 6id not consider results, and III the six
IS ye15 tgxe ofH 6f III isis ' we're ooiiected
Insurance is considered monopoly: YET it does does
eld is absolutely free for all: anybody, capitalist
OF if instead Of entering IL IN
OF the asserted profits capital openly retres
ited indemnity. yet valued policy" laws proceed
on The theory that it is simple pet ana sh2ta pe
paid according 70 The custom among
Anu-trust agitation has produced anti-coInpac5
buy common rate book which they were not Ger
tain This proceeds on two erroneous as
rate Haki5g-raCessari!y tends TO raise rates or TO
keep them Up ne other IS that rates can be forced
10 q popular figure + the statute puts on enough
pressure. These errors are rooted in deeper one
vice. popular misconcepton Of the very nature
Of insurance company. II is merely an organ
izatjon Of stockholders who become trustee for ur-
organized insurers the formal contract Is It's own
the reality is that IL acts inGorser or the
mutual contracts Of these insurers. Insurance is
tax and the company Is Just the tax colectof
To reduce the rate, change the condltions
which fix the total levy; 90 not expect reIe1 DS
abusing and crowding the collector
Now. il must be assumed that nobody can thrive
ny this prolonged non-success OF underWriting ana
that nobody wants tc pay less than the really
honest and necessary insurance rates. But the
facts not realized The subject IS utterly mis-
understood The underwriters and the pupuc az
IN touch and never have been The duty OF
initiative approach Clearly belongs to the former
They must definite rate and stick to II,
ceptng what the customer will give. The article is
Of prime necessity. and II IS theirs 10 nx the
Jrlce heV should TO talk OF the lnaoSluaCAE
rates which they nevertheless accept. for until
they Ike what they do square with what they say
they cannot get public hearing and cannot expect
sonable rates ard something which nobody else
dO-it IS for them 70 come forward aIlc explain
10 the public the nature and basis OF insurance;
what conditions are necessary to lower rates, ana
how the worrying process called supervision bears
the subject. 4 horizontal advance OF rates,
such has beer aade this year, is liable, IN me
absence Of this explanation. to provoke resentment
and be rnisia akenly assumed to be 2 rather more
than ample for the whole trouble. On the
other hand the action urged properly taken VIII Al
once largely clear the situation by bringing botn
sides together at last a common ground OF
understanding. When this mocus ViVendi IS
reached insurance viii cease 20 be game always IN
season for the reckless underwater and the popu-
larity chasing legislator Then we can all unite
prooklvn Aug p fg2 JULIUS WILCOX