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HARDWOOD RECORD 



your program is to be truly helpful and worth wbile, it must deal with 

 those facts and phases of insurance peculiar to the woodworker and even 

 more especially to the veneer and panel manufacturer. 



This 'discussion being then entirely informal. I shall take it in good 

 part and as an evidence of your interest if I am interrupted at any point 

 in my remarks by any question or suggestion. 



Fire insurance by its vital importance demands first place in such a 

 discussion. What is Are insurance in real essence? Since the Supreme 

 court has declared that it is not commerce, a positive statement would 

 seem to be in order. The accepted textbook answer is that it is indemnity 

 against loss b.v fire ; but you who, alx)ve almost all other trades, pay so 

 heavily for insurance policies, know ftiat collectively it is not indemnity 

 because every one of you loses by tire every year the total sum of your 

 premiums and against this loss you are not indemnified. Those of you who 

 have suffered fire losses know that, after you calculated the cost of your 

 new plant, the loss of business, the scatterin.sr of hard-won customers and 

 the tedious delays incident to your re-establishment in business, you were 

 not indemnified nor saved harmless. 



Your immediate money loss was (decreased by the amount of your recov- 

 ery from the insurance companies, but you were not indemnified. Even 

 the money paid you who had fires was warm from the pockets of those 

 of you who did not : and thus the eternal process of robbing Peter to pay 

 Paul goes on. The onl.v real indemnity against loss by fire is not to have 

 the fire. Fire insurance in its best estate is only the distribution of the 

 loss over a wide number of losers, plus the administrative cost of the 

 distributing process. I'ire insurance in essence is a transaction in integ- 

 rity ; it is the tempering the w ind of adversity to the shorn lamb. If the 

 lamb has by negligence or intent caused himself to be shorn, the transac- 

 tion at once becomes fraudulent. How then may you be least shorn by 

 your own or your neighbor's fire loss? Remember you escape shearing only 

 as there is no fire. Those of you who have been long in business have 

 already contributed to the losses of others more than your own total 

 insurance. 



The cost of your very partial protection against money loss by fire 

 insurance is. at least in theory, determined by the physical condition of 

 your own plant. Your business is founded on highly combustible material 

 in its most infiammable form. In most cases your buildings do not protect 

 this inflammable material, but often add to its hazard. As a trade you 

 do not have elaborate or expensively built plants. For these reasons it is 

 often not practicable for you to go to the extent in protective apparatus 

 indulged b.v manufacturers in other lines. Y'our plants operate most 

 efficiently when they are near the supply of raw material. Your raw 

 material grows in forests : as a rule then you are located in villages and 

 small cities where the public protection from fire loss is imperfect and 

 insufficient. You must, in the main, devise your own protection ; how 

 far can you profitably go in this direction? The most nearly ideal protec- 

 tion against flre In the individual plant is, of course, the automatic 

 sprinkler eiiuipraent. Can you on sane business principles justlf.v such 

 an expense in your plant? From the money cost perspective, the answer 

 to this question is the relation between the cost of api)aratus, and Its 

 maintenance, and the saving in premium. The cost of installation is more 

 easily determined than the cost of maintenance. The latter varies rad- 

 ically under differing conditions. In woodworking plants the physical 

 deterioration of such equipment is small ; the maintenance cost lies mainly 

 In preventing freezing in tanks and wet systems and maintaining air 

 pressure in dry systems. 



In your trade .you may probably rely on a deterioration ratio less than 

 5 per cent annuall.v on a combined deterioration and Interest rates of, say 

 10 per cent annually. Your premium cost after the plant is equipped 

 varies in different states from ."lOc per hundred dollars of insurance to 

 $l.riO for veneer and panel plants in frame structures. The cost of pre- 

 venting water in elevated tanks from freezing in cold climates is prob- 

 ably the greatest single item of maintenance and is usually underesti- 

 mated. For the small plant not under steam at all hours, an electrically 

 driven pump is usually more economical and if the current is dependable 

 and the water supply sufficient and unfailing, the same degree of efficiency 

 ma.v be produced. 



In a general and approximate wa.v, the cost of sprinkler equipment may 

 be determined at from $3.00 to .$3..'i0 per head, allowing one head for each 

 64 square feet of ceiling or roof surface. Next in considering this matter 

 comes the question of what your business is worth to you. By this I do 

 not mean your property or plant, but your business. How long would you 

 be suspended by a serious fire and how long thereafter would it require 

 to get your trade well in hand again? Figure this on the basis of last 

 years 300 working days and add this per diem loss to your premium 

 saving as the credit side of your protection account. Automatic sprinklers 

 properly installed with plenty of water under pressure will extinguish 

 90 per cent of the factory fires. And do not forget as a part of this 

 calculation that you have no moral right to throw onto the bending 

 shoulders of the public the insurance loss of your plant. 



If you cannot justify in your plant the cost of sprinkler equipment, do 

 not for that reason neglect the simpler and less expensive means. The 

 primitive water pall and cask is still entitled to the hero medal. Liquid 

 chemical extinguishers for ceiling and roof fires and a Pyrene extinguisher 

 for your dyn.'tmo or motor room are an urgent necessity and cost little. 

 Last and greatest of all is cleanliness and care. Even veneers are not 

 chargeable with spontaneous combustion — they must be set on fire by 



somebody directly or indirectly. Dirty dry rooms, unprotected by steam 

 jets, belching smoke stacks, stoves, bad wiring, combustible roofs — these 

 are your accessories before the fact. Every one can see them — no one 

 has the moral right to tolerate them. 



i-'inally the commonly accepted, though partial and unsatisfactory "first 

 aid to the injured" — fire insurance. How much should you carry, what 

 should it cost, how should it be written and in what kind of companies? 

 It is one of the unexplainable things of our business system that a man 

 who buys a suburban lot for $400 will, before paying over his money, 

 demand ibat the seller warrant and defend the title he gives: he will 

 demand an abstract record of every transaction the poor little lot has ever 

 known and finally he will hire an attorne.v to examine the abstract. He 

 stops short only at examining the attorney. I am not defending even this 

 omission, but the same man will buy insurance policies, which represent 

 in many cases every dollar of his net worth, without even looking into 

 the joint contracts into which he has entered or questioning the financial 

 responsibility of the insurance companies issuing them. And this same 

 man will tell you gravely that there W'ould not be such an alarming grist 

 of insurance litigation if insvirance companies were not tricky and eager 

 to grasp technicalities. 



The standard fire insurance policy is among our most complex civil 

 contracts and necessaril.v so t>ecause it must perforce cover a multitude 

 of widely varying conditions. It is not only complicated, but it is joint 

 — you are with the company, equally its maker and party. It is not 

 an ex-parte proposal to do something for you or even to you. 



At this late hour enters the titular subject of my remarks, "Insur- 

 ance Efficiency." If you pay too much for your insurance, you do not 

 get efliciency in expenditure. It you carry too much on one portion of 

 your plant and too little on another, yon do not get efliciency in re- 

 sults. If you permit too many items in your policy form, if you permit 

 conflicting and non-concurrent forms, .vou sacrifice efficiency. If you 

 do not fulfil your obligations under the polic.v. you imperil your financial 

 salvation. I do not believe it is an exaggeration to say that twenty- 

 five per cent of the insurance premiums paid out buy nothing. How 

 shall you determine the efficiency and even the enforceability of your 

 policies? In this policy contract Into which you entered, with full pre- 

 sumptive knowledge, the insurance company insures you against direct 

 loss by flre except as hereinafter provided. 



The body of the contract begins with the cheerful statement that "this 

 company shall not be liable" and follows with the comforting declaration 

 tliat "this entire policy shall be void." These sinister challenges struggle 

 for pre-emincnc tbroughout the policy which closes b.v reminding you 

 that "this policy is made and accepted subject to all the foregoing 

 stipulations and conditions." 



This is very like the man who claimed to have observed that when- 

 ever he fell into a period of bad luck it persisted steadily for seven 

 months and then grew gradually worse. But It will pay you well to 

 take the printed policy and read carefully beginning with "this entire 

 policy shall bi' void if — " and ask yourself whether any of these con- 

 ditions exist fn your plant and as .you find that they do, see that 

 an explicit T>ermission is embodied into the rider. 



Keep your insurance in as few items as possible — make these items 

 cover as broadly as possible. When you have agreed on the rider with 

 all its permissions and agreements have that identical rider and no other 

 attached to all policies. Do not allow separate or additional endorse- 

 ments. 



Then perhaps you wonder why .your premium rate Is just what it Is. 

 You ask what you can do to be saved and after each improvement In 

 your plant some new deficienc.v Is found by the next inspector. First of 

 all ask for your itemized rate make-up or schedule, showing every item of 

 charge from the basis or key rate on. This will throw much light on 

 the subject and may disclose many needless charges in .vour rate which 

 little or no expense will remove. When you have eliminated all the deficiency 

 charges practicable and find the rate still burdensome, the question of 

 competing insurance arises. With few exceptions, this is a snare and 

 delusion. Woodworkers are to be congratulated upon the few but splen- 

 did mutual and inter-insurance companies they have built up. Several 

 such have preserved a spotless record for many years and been tmlformly 

 profitable to their members, paying back annually as much as 40 per 

 cent of the premium. Small companies operating through distant brokers 

 are fore-doomed to failure and should be avoided as a plague on legiti- 

 mate insurance. 



Always remember that you cannot collect from your insurance policies 

 more than you can prove. Keep better inventory records — they will save 

 you time and money when the loss comes. Don't enter excessive and 

 arbitrary depreciation charges in your ledgers. If yon wish to reduce the 

 asset value of your plant as a convertible or liquid item, do so by opening 

 a reserve or sinking fund account. Do not attack the physical or replace- 

 ment value : that is what depreciation means and there is often no rela- 

 tion between the two. I'inally. be clean and careful In the plant, watch 

 every policy religiously, know what your plant values are; carry enough 

 Insurance to preserve you from bankruptcy and trust In a kind Providence. 



E. H. Defebaugh of The Barrel & Box, Chicago, read a paper on 

 "Price Maintenance," which was followed closely. He showed that 

 in cutting a price the seller eventually cuts his own figure, as his 

 competitor will immediately follow suit. The paper further said that 



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