Gloucester County Democrat. (Woodbury, N.J.) 1878-1932, 1906-05-03
FINANCING A FIRE LOSS
How Insurance Companies Get
Money For Big One.
METHOD OF ADJUSTING CLAIMS
Their Payment at Earliest Possible
Moment Aimed Al = Relation Be-
tween Quick Assets and Quick Set
tsements--when Securities Have to
BE Liquidated.


tsements-when Securities Have to
BE Liquidated.
San Francisco's great fire has direct
ed attention to the manner in which an
insurance company goes about to set
tie huge loss bill, says the New York
Post. Although the companies are
abundantly able to pay and many of
them possess very heavy bank bal
ances, the adjustment of claims calling
for the payment of S150,O0O,000 or
more represents a financial operation
of sufficient magnitude to involve rath-
er careful financing. How are these
huge claims to be met, where will the
companies get their money from and
how long viii it take to effect set
tlement? These questions have direct
bearing upon the money market and
to limited extent the future cost of
security prices for such issues as are
usually held by large fire underwriting
corporations.
AS soon as a great insurance COM
pany learns that it will have to foot
the bill for huge confagration its
officials hold a hurried conference and
get at the volume of their liquid as
sets and the extent of their combined
bank balances. In the. case of large
foreign underwriting corporation it's
home Office in London, Liverpool Man
chester, Berlin or Paris Is Immediately
communicated with and a rough esti-
mate made of the probable aggregate
demand With most of these COM
panies it is a matter of pride to pay
the claims at the earliest possible mo-
ment At the time of the great Chi
cago fire in 1871, when property valued
at $19O,000,000 was destroyed, and a
year later, when the insurance COM
panies had to pay an $S0,000.000 loss
bill for the Boston fire, many of the
claims were settled within a few days
after the conflagration took place.
In the same way the companies did
their best two years ago to pay the loss
es of the Baltimore fire without unreal
sonable delay. In this way they gained
prestige. Within one week after the
Boston fire one of the largest New York
companies, having dispatched vice
president to the scene to pay claims in
double quick time, wrote sufficient.
volume of new insurance to recoup it.
self for all the losses sustained. These
quick settlements involve equally quick
financing, and one of the features Of
the present movement on the part of
the underwriters to effect speedy set
Element Of the San Francisco losses has
been the negotiation with the home
Offices Of the foreign companies for ca
Bile transfers of money with which to
meet the claims.
When loss occurs an insurance COM
pany first has recourse to its bank bal
ances, and when these are insufficient
to meet immediate claims the company
borrows what it needs Most of the
large companies have accounts in four
or i've banks, so that they can easily
secure accommodations in case it is
required When the bank balances are
insufficient and losses are heavily in
excess of 100000 the company has to
either borrow funds or sell some of
the stocks or bonds that it has in it's
list Of assets. In the case of the Balti-
more fire most Of the companies man
aged to pay out what was needed with
out resorting to any violent Hquida-
tons at all Whatever securities were
sold to pay the claims there involved
were for the most part sacrificed by
companies that were too weak to bear
the loss and were forced to reinsure
their risks with some stronger rival.
This. was done in the case of nine or
ten companies that had to an extent
ignored the dangers of what our insur-
ance men call the "confagration haz-
ard" and accepted too many risks in
the affected area.
In the case of very large companies,
however, which do heavy business
throughout the United States ard Eu-
rope as well the perils Of the "confa-
grafton hazard are minimized by the
fact that the risks are SO widely dis
tributed as to render it almost impos-
sible for any one disaster to entail
sufficient loss to cripple the company.
Whatever losses are sustained by for
eign companies operating in San Fran
cisco will have probably to be financed
from the other side, since the COM
panies doing the largest business have
only an insignificant amount of money
invested in American stocks or bonds.
For that reason these companies are
not likely to sell any large portion of
the stocks held in the United States.
The payment of great fire loss is
very interesting operation. Hundreds
of men are employed in it and special
adjusters for special risks have to visit
the scene. 1t will be weeks before the
San Francisco claims are wholly liqui-
dated, but within d month a large por-
ton Of the insurance loss will be set
tied for. While the insurance com
panies will not pay for earthquake
damage, it will be difficult in many
claims to tell where the earthquake