The New York herald., 1921-07-31

FDATE making in FIRE insurance is
IN based on the expectation, first,
that most fires will be extin-
suished near the point of origin, (thus
producing what we term partial losses"
or losses less than the insurance),' and
second that all property will be insured
for a fair proportion of its value.
Eighty per cent. insurance to value,
for instance, fairly meets everyday con-
ditions. Furthermore, on an 80 per cent.
basis the owner has a personal interest
of 40 per cent. in his property's safety.
This does not mean that he must carry
no per cent. of his own liability, for we
will give him a still lower premium rate
if he fills up the gap between 80 per cent.
and 100 per cent, but in consideration of
. premium rate based on 80 per cent.
Insurance, we do insist upon his con-
tracing to take out policies for that
agreed percentage Of his values-or
stand in the place of the insurance he
does not provide. This is usually called
:'eo-insurance," It's technical name being
sReduced Rate Average Contribution
Agreement" because if an owner carries
less fire insurance than the average
necessary to prevent rate discrimination
between insurants, he must share in his
own loss so as not to unbalance the ex-
perience (results) in his class.
Without. an understanding of fire un-
derwriting fundamentals, man may
reason this way: 81 have well built
property worth about SIoo, 900 in good
neighborhood. under good FIRE protection
and not likely to burn, (all of which was
taken into consideration, by the way, in
his schedule rate), 90 will insure for
$4,000 which will cover my probable
loss"
He has reckoned without his host, be-
cause we cannot issue our policies on
that basis. With only $4,000 FIRE insur-
ancc without the "co-insurance" agree
ment), S. 900 FIRE would mean to him
a property loss of only 5 per cent. but to
rs an insurance loss Of 100 per cent.
On the basis of tho premium rate pro-
duced by schedule, he should have car
ried $4,000 insurance and paid the
requisite premium therefor. Then a
$4,000 fire loss would turn that total"
insurance loss into "partial" loss. We
rated that mans property on basis as
100 is to 80 Is to a and he wants US to
assume liability--at the same rate Of
premium-as 100 is to S (zo to y. That
would be gamble pure and simple, and
FIRE underwriting is not . gamble but a
calculation based on the law of average
when spread over many thousands Of
separated properties and a period of
years. We could secure no average on
the basis'he proposes except at prohibi-
tive rates.
Above all, "co-insurance" prevents
rate discriminations-a cardinal prin-
eiple. Were some men to carry only
$1,000 and others $4,000 at the same
rate Of premium on practically identical
risks, equal in value, it would result in
unbalancins the whole experience" on
chat class Of risks by reducing the pre-
miums and increasing the losses. This
would be gross discrimination against
and at once establish unfair rates for the
prudent man who for his own protection
provides the $4,000 fire Insurance.
That is why the man who will not pay
the premiums to meet the requirement
of 30 per cent. fire insurance to property
value, must pay the penalty at the other
end In Q reduction In the amount he may
collect when loss comes.
II you believe that "a system Of fire
Insurance rating which does not dis
cziminate between safe construction and |
unsafe construction, and between care |
fulness and negligence, Is an injury to
the community" (as one of the students |
OF our business wrote many years ago |
when advocating schedule rating), we
can demonstrate to you the fairness and |
the reasonab bleness and the desirability |
Of FIRE insurance as today sold by the
stock companies that are co-ordinated
(not eombined) to make your security
greater, to make your property safer, to
prevent your neighbor from damaging
you, to make your community better,
to make your life and the lives Of your
neighbors and of all other citizens safer,
TO make your city cleaner and healthier
and more habitable and TO help you
solve your housing problems in saving
your property from destruction by pre-
ventable fires and in paying honest
losses promptly so that your destroyed
houses may be rebuilt without needless
delay.
This is a rather large order, but after
all it represents an everyday function of
stock fire insurance, in addition to in
Identification for losses, though the
underlying service functions 90 unob-
trusively that the uninformed do not SEQ
Il.
Stock FIRE Insurance companies stand
behind the business credit OF the nation.
OF all the insurance carriers their stand
ard Of solvency is the highest; their su-
pervision the most rigid; their taxes paid
to the State the largest, and their con-
tracts the safest and the best.
JOHN B. MORTON,