The herald and news. [volume] (Newberry S.C.) 1903-1937, 1916-04-04

lines, or for d Statewide association,
particularly in view Of the requirement
! that ''all such associations shall have
at least seven directors in each county
in which it shall accept application
for membership" This practically
precluGes the formation OF extensive
and adequate mutuals sucn as could
! meet this emergency. The Jaw could
be easily amended with larger asso-
Citations in view, relating all the ne
cessary sd eguards for the protection
Of the assured.
All insurance is mutual in fact If
not in name. the diyerging point be-
tween the two systems being the dis
tribution Of the profit. In the case Of
stock company the profits of the
company are divided among its stock
! holders; in the case of tie mutual
company the profits are divided among
is policy holders, the policyholder in
the mutual company taking the place
of the stockholder in the stock COM
pany.
The success of any company de-
pends not upon its capital ctock, but
upon the amount O, business that it
secures. For instance, a company
with $1,000.000 capital stock and a
mutual company with no stock both
start in business at the same time.
There are $5,000,000 in Premiums to
be paid into each of these companies.
The stock company, by reason Of its
expense ratio. consumes from 80 to
40 per cent OF the income in expenses.
The mutual company. whicn is operat-
ing for the benefit Of its p0licyholders
exclusively, and is therefore more
economically managed, uses an aver
age of about 20 per cent. The differ
entail will soon more thar equal the
capital With which the stock company
began operation
The mutual company. being organ
lied or the protection of its own men,
bers, is more particular in the selec-
ton of its risks than a stock company.
1t is not only in a much better position
to secure reliable information concern
ing its policy holders, but, being in
business for the protection of it's fell
lev members, it recognizes the neces-
sity Of eliminating from it membership
any undesirable risk. The business Of
a stock company is conducted largely
by agents seeking business FOR them
selves, while mutual company is
composed of property owners seeking
protection for their property. There
ae reputable agents and irresponsible
agents-a good many whose only aim
in life is to get as many dollars as
they ran to increase their commits
sions They have no special interest
in safeguarding the company they rep
resent: The mutual company, On the
other hand, has no middlemen's or
agents commissions to pay, and its
sole view is the most economical safe
protection These are general prin.
siples OF course there are exceptions
in all cases.
The more insurance, the mutual
company writes, the stronger it is,
while the more insurance the stock
company writes, the loss is the liabil-
ity of the stockholders in proportion
to the insurance liability. Every pol
icy holder in a mutual company be-
comes a part Of the company, and
shares in its losses, expenses and
profits alike.
The cash premium mutual companies
are stronger than the assessment com
panies for the reason that the former
set aside a net cash surplus out Of
their earnings every year to provide
against any assessment arising.
The fundamental principle Of the
insurance business is thai in order
safely to protect its insurance, COM
pany must maintain a net cash surplus
equal to a certain per cent OF the
gross volume of business. When the
surplus exceeds this percentage it is
distributed to the stockholders. The
difference here between an old line
company and a mutual is that the
earnings above this amount go to the
stockholders in the former and the
policyholders in the latter.
The essential difference between a
cooperative assessment mutual and a
cash premium mutual is that in the
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