The New York herald., 1921-08-10
Public Regulation by Forty
eight States-Liabilities to
Protect Not Yet Earned Pre-
miums-Examinations by Ma
tional Convention of Insur-
ance Commissioners.
f1hfs II the Fourth Of Series Of EIGHT Sketches.
Pfestotu Articles W3y Be Mailed on Request.
The FNfh WIN AppsGy IN The Herald Merit Week.l


cold type. New York and Massachu-
setts were the frat States to establish
public supervision. Now all States have
officials. usually called "superintendents
Of insurance" or commissioners of In
surance," to enforce their insurance laws.
Our Offices, records, bookkeeping and
all transactions are open to the scrutiny
of any and all of the commissioners all
the time, and at our expense, OF course.
Only few years ago examinations of in
suranee companies were very burden
some, as well as expensive, and further
moro greatly interfered with Office rou-
tine and the bookkeeping that is such an
essential part Of our business. Here the
National Convention of Insurance Com
missioners has co-operated to bring order
out of chaos by instituting what is
known as Convention Examinations,
or examination by several States at one
time, the results of which are generally
accepted by all other States.
Common sense must govern FIRE under
writing as it must govern every other
business. 1t is easy enough for mer-
chant to say that he took in 100000
last year and that as he paid out only
$4,000 he made $4,000 profit. Men
often 90 to the wall on that formula and
yet it is the one most frequently mis-
applied to the business of stock fire in
surance companies. In other words,
your merchant who is not deceiving HIM
self takes an account of stock by making
an inventory and finds out whether he
has made real profit or whether he has,
after all, only a tr de balance upon
which there may be profit or loss in the
future.
Sto fire insurance companies accept
thousands of premiums during a given
month covering policies issued to termi-
nate in varying periods Of time--say in
one, three and five years to make it sim
pier, and indeed these peri DIS do embrace
the bulk Of our acccptances. Now we do
not at once "earn" all these premiums
received. The first month we earn only
one-twelfth Of the one year premiums,
one thirty-sixth Of the three year pre-
miums and one-sixtieth of the five year
prc miums. The remainder we are re-
quired by law to set aside as liability
for dnearned premiums"
In other words the premium you paid
is ours cause we have issued against
it our obligations (policies) to indemnify
you against loss by fire, but we cannot
use all these premiums in our business,
for we have not earned" them as yet,
though our liability continues Of course
until the premiums are all earned. To
offset our expenses which we incur in
handling, inspecting, passing upon and
recording all these premiums Of yours
which come to US from agents and
brokers-expenses that are very heavy
we draw on our surplus funds contributed
by stockholders, secured from appre-
ciated investments, received as interest
or gained from our business transactions
"A surplus maintained for your greater
protection and to Civ you greater con-
fdence in our business integrity and
financial responsibility.
This process is repeated over and over
again, month by month and year by
year, liabilities being established against
our new premiums as r ceivcd, and the
earned" premiums coming out Of the
liability account with the mcthodcal
approach OF the termination 1--WE call it
"expiration") of the various policies.
All the while we are discharging the
losses against contracts (policies) out
standing so that what is left in the course
of time--and believe me it is scant
enough for such hazardous business
belongs to us. 1t is at last earned"
1t is my hope that have been able to
Explain this rather intricate subject OF
the earned and the not yet armed 1--WE
call them "uncarned") premiums that
have been so much discussed OF late.
Many years ago when laws were first
introduced TO establish liabilities for not
yet earned premiums, some companies
were handling their business on the in
come and outgo basis--as was the mcr.
chant | described to you who was not
taking an inventory-and we're headed
for inevitable failure. Today, for your
safety, the law is rigidly applied to all
stock fire insurance companies and
failures arc negligible.
What with the proper handling Of this
particular account nd it is one Of the
heavy expenses Of our bus ness--so it
can be checked readily by examining
commissioners to see that il satisfies the
rigid requirements Of | W; what with
keeping our funds invested so as to OBJ.
serve the laws Of all the States, and what
with all the other requirements OF law
we are called upon to meet, while il
could not be held that VIC arc supervised
too much, it is fair to say we are super
viscd amply for your protection and our
own good.
JOHN B. MORTON.