Page:Encyclopædia Britannica, Ninth Edition, v. 13.djvu/178

16(5 INSURANCE [FIRE. and to some extent properly exists among the companies, and its value to tliem is manifest. But it is also of service to tlie insuring public. At first sight it might seem that free competition would suit the public best, and that a combination among the offices must tend to keep up rates, and to secure for the companies excessive profits, but a little consideration will show that this is a mistake. It is an unquestionable truth, though one often lost sight of, that all losses by fire must ultimately be borne by the public. The insurance companies are the machinery for distributing these losses, nothing more. If the losses fell on them, their funds, large as they are, would speedily be exhausted, and the service which they render to the public would come to an end. To those who require insurance against loss by fire it must be a manifest advan tage that they should have many sound and prosperous offices ready to accept their business, and no less able than desirous to earn or to retain the public favour by fair and liberal conduct. A necessary condition of this state of things is that the rates of premium paid for insurance should be remunerative to the offices, and the main object of the tariff system is to secure such remunerative rates. This it endeavours to do by two methods, by an agreement as to what rates are to be charged, and by affixing such a penalty to dangerous constructions, sub stances, and processes as to induce, if possible, a lessening of the danger. In other words, and reversing the order, it seeks to diminish the risk of fire, and to secure adequate payment for what risk remains. There can be no doubt as to the benefit the public derive from the former of these, in having pointed out to them, not on the authority of one office, still less on hesitating and contradictory authority, but with all the weight arising from the combined experi ence of numerous companies, that this or that method of construction, this or that combination of materials, this or that mode of conducting a manufacturing process, is attended by imminent hazard of fire, and in having the lesson enforced by a heavy pecuniary penalty. On the supposition that the offices are correct in their estimate of risks, the effect, and indeed the intention, of their rule is not so much to put money into their own coffers as to lessen the danger, and to save themselves in the first instance, and the owners of property ultimately, from the consequences of preventible fires. These rules, as will readily be seen, must have powerful influences on trade and manufactures. Many individual warehouses and mills are, with their contents, insured for very large sums, 10,000, 20,000, 50,000, 100,000, find more. An additional charge of 5s. or 10s. per cent. in respect of a supposed increase of risk may mean a payment by the owner of several hundred pounds a year, and may operate as a complete veto on some arrangement or some machine which it might otherwise be desirable to resort to. The occurrence of a few severe fires in one town, followed by an increase of insurance rates, may have, and indeed has had, the effect of driving some branch of trade away to another locality, the seat of greater caution or better fortune. It is therefore obviously desirable that so important an influence should be exercised, not precari ously or capriciously, but according to the combined wisdom and experience of those associations which may be supposed to understand the subject best, and which obtain their experience in the way that makes it perhaps of most value, by paying for it. It is equally for the public benefit that rates of insur ance should be fixed on some common scale. Suppose the system of unrestricted competition to be tried, the first effect will be a general and great reduction in rates. But it may be said, " So much the better for the insured ; if the offices can afford this reduction of rate, it will only be a fair result of competition ; if they cannot afford it, they will be the losers, but the public will gain ; will the effect not be simply to reduce the rates to the paying point, and no further 1 " This would be all very well if the paying point could be absolutely ascertained or determined in any way beforehand, but the rate comes first and the losses come afterwards. In other businesses prices arc based on some certainty as to the cost of production, but in selling fire insurance the cost is not known till after it has been sold. In a free competition it is the sanguine man s views which regulate the market price, and the rates therefore cease to be remunerative. The consequences are that some offices disappear altogether, others take fright in time to avoid ruin, though, not to escape serious loss, persons who might establish new offices are deterred from doing so, the business gets the character of being a highly speculative and hazardous one, requiring extravagant profits to induce men to carry it on at all, and the public have to bear the cost. Unrestricted competition therefore is not for their advantage. The combination we are considering has another bene ficial effect; it serves to distribute the burden of losses fairly. If it is a just thing that cotton-spinners should bear all the losses that arise in cotton-mills, and not leave them to be borne by the owners of private dwelling-houses, or vice versa, it is well that the loss by each class of risks should be measured fairly. But, while the experience of any one office, taken by itself, furnishes a very imperfect criterion, each contributes its quota of knowledge and experience to the common stock, and the public get the benefit both of broad and trustworthy data and of that peculiar and intimate acquaintance with each different class of property or process which the conductors of one company or another are sure to possess. On the other hand, it is beyond question that no association of the kind will ever hold together a large body of independent societies, except under the pressure of some necessity. No conventional or excessive rates can be maintained for any length of time. Some member of the union is sure to perceive that popularity and profit may be gained by introducing a lower rate, if a lower rate is manifestly sufficient, or a new company starts into exist ence to remedy the grievance. It is to be remembered, too, that the directors and shareholders who control the offices are likewise insurers, quick to raise the question of how far the rates they have to pay as individuals are justified by the risks run ; and if it cannot bo shown that these rates are a true measure of the risk, offices are soon constrained by a sense of justice or by self-interest or by pressure from without to mitigate them. In short, the association is a union bound together by necessity and tempered by competition. Adequately to measure the risk of loss by fire demands not merely reference to an extended experience but a watchful regard to current changes. While the profits of fire insurance business fluctuate considerably from year to year, and seem even to follow cycles of elevation and depression, the tendency on the whole appears to be towards a growth of risk, although excessive competition among offices prevents the rates from rising in proportion. Among the causes are the prodigious increase in the use of lucifer matches ; the introduction into commerce of such articles as jute and esparto grass and mineral oils, which are either highly inflammable, or have by themselves, or in combination with other substances, a tendency to generate combustion ; the great speed of machinery ; and the vast accumulation of property exposed to the risk of one con flagration, owing to the larger size of mills and warehouses and their concentration in particular localities. The very development of the insurance system may conduce to