HARDWOOD RECORD 



33 



Tbo subject of fire iDsurnncc tn relation to lumber risks is a deep and 

 intricate one, and realizing fully how very uninteresting a mass of sta- 

 tistics and flRures on this subject would be to a meeting of this kind, we 

 bare aimed to eliminate as much of that kind of matter ns possible. 



During the Investigation which this committee has carried on, quite 

 a number of our members were consulted, and it is very surprising to 

 learn that the question of Are insurance rates appears to be a proposi- 

 tion quite foreign to their Interests, they apparently being satistled to 

 pay the rates Imposed, with the evident feeling that these rates arc so 

 tixed and invulnerable that there Is no recourse. 



For the purpose of a little enlightenment for a number of the mem- 

 bers, and by a special request, the committee will ask your kind indulgence 

 while it treats on the elementary principles of insurance. 



First, we will take up the question of rate making. The question has 

 been asked us how are these lumber rates made. All fire Insurance 

 rates In Wisconsin are made by what Is known as the Wisconsin Inspec- 

 tion Bureau, under an analytical system of rate making Icnown as the 

 Dean schedule. This assumes a certain standard risk and makes addi- 

 tions for defects in construction and hazards from occupancy and expo.suro 

 and gives credits for advantages in construction and five protection. 

 These chKrgcs and credits are made by percentages upon a basis charge. 

 This basis charge is a d.'flnite number of cents per §100 of insurance, 

 and a basis table is adopted for the state, which provides for different 

 basis rates, for the various cities, classified according to size. Are pro- 

 tection and other conditions affecting fire hazard. The adoption of this 

 basis table and classiflcatlcn of the cities is a matter of individual judg- 

 ment of the person applying the schedule, and it has been shown in 

 adopting this schedule for Wisconsin at the time of the introduction 

 of the Dean schedule, an attempt was made to approximate as nearly as 

 possible the existing rates. 



In this state a local hoard of underwriters or an association of local 

 agents in any city or village are authorized by statute to establish and 

 maintain rates therein. This statute enacted in 1S97 specifically pro- 

 hibits all other attempts to establish or maintain rates, and these local 

 boards are the only rate making establishments recognized by our law. 

 The practical operation of these boards, as developed from testimony in 

 the investigation which our legislature of 1911 ordered, is of some 

 interest. The cities of Milwaukee, Madison and Superior have boards 

 which employ their own expert raters and operate independently of the 

 Wisconsin Inspection Bureau, through which the estimates of rates for 

 the rest of the state are made. The Wisconsin Inspection Bureau, which 

 Is located at Milwaukee under the management of H. C. GrilBng, makes 

 surveys and so-ealled estimates, and these estimates are sold to the 

 different companies and furnished to their agents as required. Variations 

 from these estimates are comparatively rare. Where variation has been 

 made from these estimates it was done in favor of a large insurer, to 

 meet mutual or other competition from outside of the members of the 

 board. 



The testimony referred to is practically unanimous that there is no 

 competition whatever between agents representing local boards or be- 

 tween companies whose agents are members thereof. There have been 

 Instances where agents of established companies outside of the local 

 boards have written risks in a city at a rate lower than the board rate. 

 It is claimed that when this has been discovered the local boards have 

 demanded of the companies taking such risks that the same be cancelled 

 and that such cancellations have been made. There is in these instances 

 a direct clash between the representatives of companies, and agents who 

 seek to maintain rates, and of the insured who seek the lowest rates. 

 With the local agents authorized by law to co-operate in making and 

 maintaining rates to be charged by them, and with no appeal from such 

 action, it is not to be wondered that insurers, whose premiums are 

 sufficiently large to warrant attention to the subject, protest and seek 

 Insurance outside of the local agents, and often from companies not 

 authorized to transact business in this state. 



The problems of fire insurance rates are under scrutiny, not only in 

 Wisconsin but in many other states. Our present system of regulating 

 the business of the insurance companies seems to be at fault. There 

 seems to be an increasing public demand that the state shall take this 

 subject In hand and make a thorough investigation. The proposition, 

 however, is so large that it will be some time before the legislature can 

 handle this problem intelligently. 



The field of supervision has extended to the question of the cost of the 

 Insurance, and the possibility of the reduction both in our fire loss and 

 In the expense of distributing that loss. The property destroyed Is the 

 smaller part of the loss for which fires are responsible. The expense of 

 the Insurance is almost equal to the loss which it distributes. The cost 

 of maintaining fire departments and other fire protection is not much 

 less. Worst of all, the business of fire insurance appears to be so 

 conducted as to tend toward Increase rather than decrease of the fire 

 losses. The business of Insurance and the amount of money handled 

 increases as the loss increases. The agents of the companies who are 

 best acquainted with the property Insured arc paid a percentage on the 

 premiums they collect. The higher the risk of loss and consequent 

 premium the higher the payment to the agent. The greater the volume 

 of premiums the greater the business and consequent chance of profit 

 to the companies. It is a credit to the companies and agents alike that 

 In spite of this condition, a movement for fire protection has been pro- 

 moted by the companies and Joined In by many of the agents. 



It is, however, too much to expect tliat the activities of the com- 

 panies or their agents shall extend towarcl comprehensive future plans 

 for the practical elimination of flrc waste, and consequent reduction in 

 the business of insurance, such as has been brought about in the Euro- 

 pean countries. This must be accomplished by Intelligent action by the 

 state. The agitation over the question of fire insurance rates has re- 

 sulted in legislation in quite a number of the states. Our legislature of 

 1:111 ordered an investigation into matters relating to the business of 

 flrc insurance and prevention of fires. The committee which was appointed 

 by the legislature has held a number of meetings and taken a lot of 

 testimony in various cities throughout the state. This committee Is 

 required to make its annual report with its recommendations on or 

 before Dee. 1 of this year. Its work has not progressed to a point where 

 any definite conclusion has been reached, and any statement of con- 

 clusions should be deferred until the committee report is made. We 

 have already referred to .some of the findings of this committee, which 

 comes to us as advance information. 



Some time ago Mr. Kellogg gathered some very interesting statistics 

 on flre insurance rates from the members of this association. The rates 

 paid by our various firms show a great disparity and range from $1.50 to 

 $6.70 on sawmills, from 90 cents to S6.30 on planing mills and from 

 $1.10 to $3.60 on lumber yards. Some of the lower rates, of course, 

 being preferred risks, such as sprinkled mills, well protected lumber 

 yards, etc. In another report which Mr. Kellogg published, and which 

 touches a vital part of the subject before us, is the ratio of losses to 

 the premiums paid. From information which our secretary procured 

 it was not possible to segregate intelligently sawmill risks, planing mill 

 risks and lumber yard risks, for the reason that in a number of instances 

 these risks were combined. The forty-two firms reporting show a total 

 loss ratio for a period of ten years of something like twenty-three per cent. 

 It is amusing indeed to compare these figures with the figures that the 

 old line companies submit. Replies have recently been received from 

 some twenty-five or thirty of these old line companies, in which they all 

 invariably claim that their Wisconsin experience with lumber risks has 

 been most unsatisfactory, and that their loss ratio runs from sixty to 

 seventy per cent. Giving them the benefit of all doubt in this matter, 

 and recognizing fully that in the compilation of these figures they 

 group not only lumber but other woodworking hazards, this committee 

 is inclined to doubt the correctness of their statistics. 



Of course this feature must be taken into consideration in the com- 

 parison of these loss ratios, the figures which Mr. Kellogg has compiled 

 and which show a loss ratio of twenty-three per cent can be justly termed 

 preferred risks, while those of the old line companies undoubtedly include 

 a great many poor risks. The sawmill away back in the woods, without 

 any flre protection whatsoever, is a poor risk. When they have a fire 

 their loss is generally total and their loss forms a very important factor 

 in the loss ratio of the old line companies. 



The question which Is before this association, and which has been 

 given to this committee to solve, is "Can we reduce our present appar- 

 ently exorbitant fire insurance rates?" We believe that if this matter is 

 intelligently handled, quite a material reduction may be effected. It is 

 useless for us as individuals to attempt to batter down the rates of the 

 old line companies, operating under the so-called board rates. The 

 proposition must be handled collectively. Your committee recommends, 

 first, co-operation with the National Lumber Manufacturers' Association, 

 which is now actively engaged on this very same proposition. In a 

 recent interview with Secretary Rhodes we were informed that the 

 National association has in view the formation of an inter-association, 

 national in its scope, to be composed entirely of lumbermen. The Na- 

 tional association first had under advisement the project of taking over 

 one of the now existing inter-insurance associations, but this plan has not 

 been taken to very kindly, and a feeling seems to be manifest everywhere 

 that this business of insurance Is distinctively our own business, and 

 that it should be handled and managed by the lumbermen themselves. 



Mr. Rhodes advises us that interest in this proposition is very intense, 

 particularly in the West, and that this proposition will soon be developed 

 into something tangible.. You of course will understand that in an 

 inter-insurance association, such as the National association is to form, 

 only a certain percentage of your risk can be safely handled. Perhaps 

 the limit of liability accepted by such an association will not be over 

 twenty-five per cent. The balance of your risk will still have to be 

 placed elsewhere. 



Here we wish to lay before you the remedies proposed by Mr. Holt 

 of the George H. Holt Company, Insurance expert of Chicago, who ad- 

 dressed our convention at the Green Bay meeting in ,Tuly. We were 

 unable to form any comprehensive idea of Just what Mr. Holt's plans 

 were from his address at our July meeting, but in several interviews 

 which we have had with Mr. Holt since his plan seems to be that we 

 should purchase our insurance collectively. Mr. Holt seems to be very 

 confident that the board rates of the old line companies can be reduced. 

 He appears to have a very comprehensive and, the committee believes, 

 an entirely feasible plan for bringing the necessary pressure to bear. 



He proposes first to make a thorough field Investigation of all risks 

 which may desire to lend their support to such a movement. The plan 

 calls for a couple of expert raters to visit our various plants and study 

 the hazard which surrounds them, and then classify these various risks, 

 such as class "A," class "B," etc. ' 



Working in conjunction with a committee empowered to place all of 



