The New York herald., 1921-05-27
MILLIONS OF HIDDEN
INSURANCE PROFITS
RAISE HOUSING COST
Untermyer Shows Enor-
nous Sums Are Added to
Burden on Builders by
High Fire Risk Rates.
COMPETITION NEEDED
Premiums Of $415,000,000,
Half Of 1919 Receipts, Are
Said to Have Gone to For
eign Companies.
PEOPLE LOSE S3O,OO0,0OO
Would End Ban Against Mu-
tuals, Stop All Blacklisting,
Regulate Rates and Curb
Exchange Activities.
PEOPLE LOSE S3O,OOO,OOO

AS far as the fire insurance busi-
ness is concerned New York State is
"at the tail of the procession" and has
been kept there for years as a result
of the monopolistic practices of the
insurance exchanges in sitting compe-
tition and preventing the intrusion of
mutual companies into the local field.
The foregoing defines the situation
as it was described yesterday by Sam
uel Untermyer, counsel to the Lock-
wood legislative committee. after a
days inquiry into fire insurance mat
ters. Only few States besides New
York. Mr.. Untermyer showed. adhere
to the Old fashioned objection to per-
mitting mutual companies to operate
on the same basis as stock companies.
These include California and Georgia
and even there the restrictions are not
so severe nor the monopoly Of the
stock companies so absolute as In the
State that offers the most business of
all.
These facts, with the further dis
closure that premiums aggregating ap-
proximately 415,000,000, and repre-
sentLlg about half OF the fire insur-
ance written in 1919 in the United
States, were paid to foreign companies
principally British, were the features
of yesterdays session Of the COM
mittee. The insurance of the foreign
controlled companies, Mr.. Untermyer
suggested, materially affects the do
mestic insurance market, and through
that the building industry.
PROFITS Hidden in Reserve Fund.
Mr. Untermyer sought also to prove
that the practice of segregating half OF
the premiums paid on one year fire pol
lcics in reserve fund resulted in the
accumulation by the companies of mil
lions of dollars of concealed profits
which might properly go to the reduc-
tIon of premiums. Insurance experts
questioned dislikcd the tern CON
cealed' profits They preferred and did
refer to them rs "unrevealed" profits.
The New York State law requires
that in the case OF one year policies %
per cent. of the annual premium be set
aside as a reserve. the other half going
into the companies general operating
fund. For policies running longer
larger reserve is required. Through
Alfred Nj. Best, publisher of Bests
Tps,mance Reports, and recognized
authority on fire insurance, Mr.. INTER
rnyer brought out that on the average
50 per cent. of this reserve, or 70 per
cent. of the aggregate premiums col
lected, was actual salvage, although
never carried or reported on the COM
nanies' books as assets. Continuing, he
contended that the income from this
enormous fund. running into hundreds
OF millions, was appropriated by tho
companies. while IT properly belonged
to the policyholde and should be ap-
piled 70 the reduction Of premiums
Figures were introduced to show that
this reserve fund. in the case Of the ten
leading companies doing business In
New York, amounted at the end of 1920
to S197, 900. 900. and created an income
for these companies of more than
81 900. 600 each. which should. In the
opinion Of counsel to the committee, be
applied to reduction OF premiums.
In naming the ten companies that In
1920 had accumulated this great reserve
fund Mr.. Untermyer made It clear that
no invidious distinction was intended.
but the unit ten was taken as con-
venient figure for analysis.
Mr.. Best was the chief witness and
the greater part of his testimony had TO
do with the operation OF the New York
Fire Insurance Exchange and Its effect
tipon housing and building through Its
relation TO insurance costs. Mr.. Best
is not connected with any insurance
company and refused to accept an offer
of a retainer from the committee for his
expert testimony.
Exchange Makes the Rates.
Mr.. untermyer briefly sketched the
ground covered when Willis o. Robb.
manager Of the Fire Insurance Ex-
change, was on the stand several weeks
ago. This revealed the rate making
function Of the exchange its practice
Of issu.ng certificates TO do business only
70 such insurance agents licensed by the
state az were approved by the ex-
change the privilege of allowing an adj
ditional per cent. commission to
brokers who pledged themselves not TO
do business with any companies not
members Of the exchange and other
features Of its operation. including the
ban placed upon mutual companies at
tempting to do business in the territory
controlled BY the exchange.
Mr.. Best's testimony embraced sew
sral constructive features which can be
summarized as follows:
He admitted mat except IN cases
where discrimination Is alleged the New
York State authorities have no power
nf supervision over insurance rates, and
tnat these rates arc arbitrarily fixed
by the exchange. lie recommended an
amendment OF the law that would estab-
lish minimum and maximum rates and
permit OF free competition between the
prescribed limits.
RE recommended that the Fire rnsur-
ance Exchange should be compelled to
admit to membership and provide
ratings for any company authorized to
90 business within the state of New
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