Page:The New International Encyclopædia 1st ed. v. 07.djvu/709

FIRE INSURANCE. 645 FIRE INSURANCE. trary, a partial loss must be paiil in full, pro- viilnl it does not exceed the amount of the insur- ance. There arc two unfortunate results of thi^ arrangement. One is that it increases the < i plexity of the calculation which an insurance company must, make in estimating the risks it. assumes. The other is that, in the long run per sons insuring their property tor a small part of its value gain at, the expense of those carrying insurance more nearly equal to the value of their property. If, for example, of two similar pieces of property each worth $10,000, one is insured for $4000 "and the other for $8000. the premium paid by tin' owner of the former property is only one-half of that paid by the owner of the latter. If now each piece is damaged by fire to the ex- tent of $3000, each owner recovers the full amount of the loss. The ratio of premium to indemnity is therefore twice as great in the one case as in the other. There are two possible reme- dies: The premium rate might be lowered as the ratio of insurance to value was increased, since the actual risk for $1000 insurance dimin- ishes pari passu. A very different remedy is usu- ally adopted, however, known as coinsurance. A coinsurance clause attached to a fire policy stipu- lates that the owner of insured property must insure for a certain percentage — usually 80 per cent. — of its value ; or, if he carries less insur- ance, must be held to be his own insurer for the difference between the amount carried and the 80 per cent. This provision has no effect upon the amount of the indemnity received in the case of total loss. In the ease of partial loss, however, it does away with the discrimination in rates in favor of small insurance. To recur to the example already used, the two pieces of property, each worth $10,000, must, in accord- ance with the coinsurance clause, be insured for $8000. The owner who has only $4000 of insur- ance is considered to carry his own insurance for the other $4000. If the two pieces of property were totally destroyed, each owner would re- ceive as indemnity the amount stated in the face of the policy, and the ratio of premium to in- demnity would be the same in the two cases. If, on the other hand, each piece of property was damaged to the extent of $3000, the owner car- rying only $4000 of insurance would receive but $1500 of indemnity, since as self-insurer for one- half of the required 80 per cent., he must bear one-half the loss. The other owner, having insured his property for the full 80 per cent., would receive the full $3000 from the insurance company. In this way the ratio of premium to indemnity is made uniform in the two cases. The principle of coinsurance is that the entire property at risk should bear the burden of the loss of any part of it. It is a principle long familiar in marine insurance under the name of 'average.' It is applied to all fire-insurance policies issued in France, Germany, Belgium, and Russia. It is clearly in the interests of justice, since it brings about a more equitable distribu- tion of the cost of insurance. Anti-Coinsurance Legislation. In spite of all these facts, the attempt to introduce such a clause into fire-insurance policies in the United States has met with great opposition. It was first used to any extent in 1802, and as early as 1893 three States passed laws prohibiting its use. These States were Missouri. Tennessee, and Maine. (Maine repealed the law in 1895.) Similar laws have since been enacted by nine other States, in tin- following order: Loui iana [owa, Georgia, Indiana. Michigan, Minrn Wisconsin, Ohio, ami New Jersey. The Ohio law. which was passed in 1896, was repealed in 1902, lra ing ten States w it li such laws till in force. To break down the opposition to the coinsurance clause, the companies have adopted a plan ..f offering insurance at a lower rate when the coinsurance clause is in the policy than when it is not. This they can afford to 'I", since the effect of tin- clause is to reduce the risk. Sever- al static which prohibit coinsurance clauses under other circumstances, authorize them when they are accompanied by a reduction of rales. Governmental Regulations. The discu ion of the advisability of Government ownership and management of the insurance business belongs in the general article on Insurance. So far as lire insurance is concerned, there have been but few experiments in that direction. Such Govern- ment fire-insurance offices as have been estab- lished, chiefly in Prussia and Switzerland, have operated over so small a territory that their experience is of little value. They have lacked one of the chief supports of an insurance office — the increased regularity in the proportion of losses to risks which results from bringing many risks together in one company. In all parts of the civilized world governmental super- vision and regulation of private companies is the general rule in the insurance business. In the United States each individual State exercises supreme authority over the business within its own territory, as the National Government has as yet made no attempt to regulate it. The re- sult is a great deal of diversity in the laws to which companies operating in a large number of States are subjected. Nearly all these laws have been passed in the real or supposed interests of the insured. A few relating to taxation have •been passed for the purpose of raising revenue. Reference has already been made to certain spe- cial laws in force in a comparatively small num- ber of States; viz. anti-compact laws, valued- policy laws, and anti-coinsurance laws. It re- mains to notice a few of the more common pro- visions of the different States. In nearly all States it is necessary for a company desiring to do business within its borders to secure a license from the proper State official. In sonic States it is necessary for a company from without the State to make a deposit for the security of policy- holders within the State. It is sometimes neces- sary for agents to secure licenses to solicit busi- ness within the State. In nearly all States com- panies are required to make annual reports, and to submit to examination by the proper State official whenever he deems it necessary. In most States they are required to maintain a reserve sufficient to reinsure all outstanding risks. All Stales tax fire-insurance companies (certain mutual companies are exempted in some States) . and sometimes a discrimination in taxation is made in favor of domestic companies against those from outside the State. In many States a 'reciprocal' law is in force with regard to taxa- tion and the conditions of entering the State — that is, the law of the State provides that a com- pany from any other State, desiring to enter its borders, must meet the same requirements as the State in which the company is chartered im- poses upon other State companies. The great