Fire Losses and their Prevention.—The annual fire losses in the
United States during 1910-20 as compiled from various sources by the
Spectator Co. show a fluctuating tendency due probably to their relation
to the changing business situation. It will be noted that for
the year 1920 there is an unusually high figure.
Fire Losses in the United States, 1910-20.
(From the Insurance Year Book.)
| Aggregate Property Losses |
No. Fires Causing Loss of $1,000,000 or More | ||||||||||||||||||||||||||||||||||||||
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During 1910-20 there were 10 fires involving losses of $5,000,000 or more each, 5 of which caused losses of over $10,000,000 each. Certain of these fires were caused in part at least by explosion.
The insurance experience of the 10 years was very favourable as there was only one year, 1914, during which the ratio of insurance losses to premiums exceeded the average ratio of the past 61 years. This ratio touched its high point in 1914 at approximately 60% and its low point in 1919 at approximately 40%. The ratio was rising during 1920 and 1921.
In 1915 the Actuarial Bureau of the National Board of Fire Underwriters was founded in response to a demand for complete classified statistics of fire insurance experience. To 1921 this work had been devoted almost entirely to the classification of losses by states and by causes and a report had been issued on this subject covering the years 1915-19 inclusive. The following table is a condensation of this report:—
| Amount of Losses |
Per cent of total | |
| Strictly Preventable Causes | $287,759,960 | 25 |
| Partly Preventable Causes | 484,753,172 | 43 |
| Unknown Causes | 360,587,544 | 32 |
| Total | $1,133,100,676 | 100 |
Little was done in the development of entirely new fire-prevention devices. There was considerable improvement in the efficiency of operation of devices which were already in use in 1910, and there was a widespread development of education and stimulation of fire prevention. In 1920 the President of the United States issued a proclamation setting aside Oct. 9 as fire-prevention day. Education in fire prevention was extended to the schools and a large amount of literature was distributed. Results from this work had not yet become perceptible during 1921, though future years were confidently expected to show a reduction of losses. During the war important industrial and governmental property was put under the care of fire-prevention engineers. The results furnished abundant evidence of the effectiveness of preventive measures when directed by experts.
Fire Insurance Rating.—Little fundamental progress was made in the development of fire-insurance rating. Modifications of the Universal Mercantile Schedule and the Dean Schedule still were used throughout the country in 1921. The latter had been adopted in new localities, notably in New England and the Middle, West, and was used in 29 states. Interesting proposals for improvement of the rating situation were offered in the Experience Grading and Rating Schedule and the L. and L. Schedule, both of which failed to be adopted. The former contemplates a revolutionary change of methods of rating. It is a plan for collecting statistics on fire-insurance experience in such a way that relative hazards may be calculated and premium rates based upon them. The L. and L. Schedule does not differ in principle from the older type.
Several states have passed laws dealing with fire insurance rates, varying all the way from the prohibition of discrimination to the creation of a special rating board for the purpose of making rates. Better opinion seems to favour a type of law which permits the making of rates by insurance carriers acting in concert and subjects the rate-making organization to supervision. Several important reports on investigations dealing primarily with fire insurance were made during the period, resulting in advances in state regulation and in curbing undesirable practices. The most significant of these was the Merritt Report transmitted to the Legislature of New York in 1911. Others were the Illinois Report of 1914, the Pennsylvania Report of 1915, the Missouri Report of 1914, and the North Carolina Report of 1914.
Anti-Compact Laws.—Attempts have been made in certain states to prevent all forms of coöperation between insurance companies in fixing premium rates. In the states of Missouri, South Carolina, and Mississippi such attempts resulted in the virtual withdrawal of the companies. Compromises were effected in the first two states and the objectionable legislation withdrawn; the situation in Mississippi was still unsettled in 1921. Such destructive methods are evidence of a poverty of constructive ability to deal with insurance problems. They cause confusion in business and retard the adoption of more adequate measures.
Underwriting Profit.—The conflict of opinions concerning what constitutes a reasonable underwriting profit for fire insurance companies was resolved in some measure by the agreement between the National Convention of Insurance Commissioners and the National Board of Fire Underwriters. The following points of agreement were reported by the latter body in the Proceedings of its 55th Annual Meeting:
“1. The minimum ‘reasonable’ underwriting profit is 5% plus 3% additional for conflagrations.
“2. Five years is a minimum term upon which to base a calculation as to underwriting profits.
“3. The difference between earned premiums and incurred losses, plus incurred expenses, represents underwriting profit or loss.
“4. A conflagration is defined as property loss exceeding $1,000,000.
“5. In determining the underwriting experience in any given state the first $1,000,000 of loss shall be charged to the particular state and the balance distributed among all the states (including the one in which it occurred) in proportion to the premium income of each.
“6. That no part of the so-called ‘banking’ profit shall be included in the underwriting profit.”
It is to be noted that the term “underwriting profit” is defined by this agreement as signifying a profit drawn entirely from the operation of the insurance business as such and that there is eliminated from consideration any profits which a fire-insurance carrier may make from invested funds. Dividends to stockholders are in many cases paid from the latter source, insurance profits going entirely to increase surplus.
Revision of Standard Policy.—The old New York Standard Policy which was in use in many parts of the United States was supplanted in New York on Jan. 1 1918 by a new policy form. The new form differed in detail and in arrangement from the old and gave effect to the changes which some 30 years' experiences had shown to be desirable. Substantially the same policy had been enacted in Pennsylvania in 1915. The new policy had been approved by the National Convention of Insurance Commissioners and was in effect in 1921 practically throughout the United States.
Marine Insurance.—The only figures indicating the extent of the marine insurance business in the United States are those which were compiled by Dr. S. S. Huebner of Philadelphia in connexion with an investigation of marine insurance described below. These show that the total net premiums received during the year 1918 by American companies amounted to over $70,000,000 and by foreign companies to over $39,000,000, a total of $109,000,000. Estimated losses paid were respectively $40,000,000 and $24,000,000, a total of $64,000,000. These figures take no account of the large amount of marine insurance which is placed directly with the home offices of foreign companies, of which no record appears in the American reports. It is variously estimated that premiums for this business aggregate 20% to 30% of the total for the United States.
The War and Marine Insurance.—Marine insurance was more intimately connected with the conduct of the World War than was any other line, since it dealt with hazards involved in shipping supplies to Europe. As evidence of the increase of interest in the business during the war, the N. Y. Insurance Department reports that, while there were but 58 organizations authorized to write marine insurance in New York on Jan. 1 1914, there were 109 so authorized on Jan. 1 1918. This total includes new companies organized during the period as well as old companies extending their facilities. So great, however, were the risks incident to war that it was impossible for private initiative to cope with them. Accordingly the Government established the Bureau of War Risk Insurance, which accepted insurance against war hazards. This Bureau was a necessity during the continuance of hostilities; without it American commerce must have almost ceased. Its operations had by 1921 been discontinued so far as they related to marine insurance. New private organizations were attracted into the field by the seemingly large profits, but lack of experience and reckless underwriting caused the disappearance later of some of these organizations and the withdrawal from the marine business of many of the companies primarily interested in fire insurance. Losses which were apparently small during the war period in their final settlement turned out to be alarmingly large. In addition there was an increase in the moral hazard after the war, due to depreciation of values and to the tendency on the part of foreign merchants to refuse to accept shipments of goods whenever a pretext could be found. Congestion of ports in the artificially prosperous times succeeding the Armistice was another cause contributing to increased losses.
During this period, owing largely to the competition of new underwriters, the marine insurance contract was quite generally extended
