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Inter - Insurance 



Editor's Note 



The proper iusurancc of suwiniU and wood-working plants has always been ; 

 the introduction ot inter-insiirance, this cost has been cut down materially, 

 described in the accompany iiii; paper, read by V. S. Epperson of Kansas City, Mo., 

 National Veneer & Panel Manufacturers' Association held in Chicago recently. 



u expensive proposition, but with 

 The workings of this system are 

 at the semi-annual meeting of the 



I have just consented to act as a substitute 

 and therefore am not prepared with a set 

 speech on the subject of "Fire Insurance." 

 I hardly know just where to begiu, as the sub- 

 ject is so important and far-reaching, and much 

 prefer that this matter take the form of a dis- 

 cussion, and I shall be glad to answer to the 

 best of my ability any questions that may be 

 asked. 



I'ire insurance has become one of those 

 necessary adjuncts to manufacturing and com- 

 merce. It must be taken into account in all 

 trades. ;\Iany of you, I know, feel that your 

 insurance rates are exorbitant, and you may be 

 right. You also may be wrong. I confess that 

 I am not personally very familiar with veneer 

 and i^anel plants. The Lumbermen's Under- 

 writing Alliance extends insurance to a few 

 of them, but I do not recall having personally 

 gone through more than one or two plants. 



It is all-important that the insurance shall 

 be sound so that if a loss occurs, it will be 

 honestly paid. The plan known as inter-insur- 

 ance, if administered by a manager of integrity 

 who is qualified by experience as a safe insur- 

 ance man, produces the soundest, safest and cheapest fire insurance 

 known. The first or basic cost of insurance of any kind is the loss. 

 In fire insurance it is the loss or damage by fire that constitutes the 

 first and necessary item of cost that can not be avoided and must be 

 met. The only way to minimize this first cost is to improve the haz- 

 ards, to do good-housekeeping; and exercise great care against fire. 

 The second item of necessary expense is the cost of administering 

 and operating the insurance medium. These two items taken together 

 constitute the necessary or fundamental cost of all insurance, includ- 

 ing fire. 



Stock companies — Llo3'ds ' and all other plans of insurance — incur 

 this unavoidable basic cost. In all forms of insurance, if successful 

 and sound, the money to provide for losses, expenses and profits, 

 must of necessity be furnished b}- the policy carriers in the form of 

 premiums. If the premiums are inadequate to meet the losses and 

 expenses, then the stock company would lose money. If the premiums 

 are more than adequate to meet these items, then the stock company 

 makes and retains a profit. No one wants an unsound house. There- 

 fore as just previously explained the policy carrier, in order to hold 

 a sound and valid policy, must pay for it such a price as will enable 

 the company to meet its losses as they occur. Since this obligation 

 rests upon policy carriers only, there can be no argument against the 

 adoption by them of a simpler plan of a direct exchange of indemnity, 

 thus cutting out the profit to others and all unnecessary expenses. 

 I can best .explain to you the meaning of inter-insurance by 

 describing as briefly as possible the manner in which it is conducted 

 by the Lumbermen's Underwriting Alliance. Policy carriers are 

 at all times interchanging indemnity with each other and are doing 

 it on an equitable basis, as you will see as I proceed. The manner 

 of operating the Alliance is exceedingly simple. The policies are of 

 the usual New York standard form, containing the same contract 

 features as those of the stock companies. When a fire occurs the 

 loss is adjusted in the usual manner, and there is taken from our 

 books what we call "an apportionment sheet," that is, a list of all 

 policies in force and in efi:ect at the time of the fire, together with 

 the annual premium on each. (The stock companies call this a 

 premium, but we call it a premium deposit because the money is 

 placed and carried to the credit of the policy carrier who remits it.) 



U. S. EPrEESON, K.\XSAS CITl', MO, 



Now, to illustrate the cost to each policy 

 holder of his share of a given fire, we will 

 assume that the loss to be paid is $100,000 and 

 that the total annual premium on live policies 

 in existence at the time of the fire is $500,000. 

 This means that twenty per cent of the annual 

 premiums is necessary to pay the loss. There- 

 fore a levy of twenty per cent of each partici- 

 pant 's annual premium money is made, which 

 aggregates the sum sufficient to meet the obliga- 

 tion. By this method all inequalities of hazard 

 as well as of the amounts of insurance carried 

 by each are equalized at the settlement of each 



tl fire loss. 

 / It is important that the manner of appor- 



I tioning the fire losses shall be eminently ■ fair 

 so that one policy carrier will not be made to 

 contribute more than his fair share of a given 

 loss. The plan of the Alliance, which I have 

 just described, meets all of the demands of 

 fairness and parity among participants. 



Our plan further reduces the cost of fire in- 

 surance by reducing the fire losses. This is 

 done by a system of regular, thorough and 

 rigid inspection. We suggest to hundreds of 

 owners of plants the removal of fire-breeding conditions, and improve- 

 ments that will reduce the hazard, thereby reducing the cost of the 

 insurance. Considering that we can not get away from the first or 

 fundamental cost of insurance, the thing to do from an economical 

 standpoint is to reduce the fires by proper precautions and thus 

 reduce the necessary item of first cost. 



I think I have now made it plain to you that since inter-insurance, 

 conducted under the plan described, will produce insurance at the 

 lowest possible cost, then it must also be clear to you that any com- 

 pany undertaking to furnish insurance at any lower price would lose 

 money, and therefore would not long continue in the business. This 

 then is the only item of expense necessary to your business, which is 

 available to you at the cost of production. You pay a profit to 

 someone, and necessarily so, on every article of mill supply and every 

 other necessity to the safe and profitable conduct of your business. 

 Y''ou should not object to the cost of your insurance conducted under 

 this plan no matter what that cost may be, because whatever it 

 proves to be is the figure below which it can not be produced. 



You may have heard the Alliance plan. We have been operating 

 for seven years. Our initial rates probably average from twenty to 

 twenty-five per cent under the rates of stock companies, and at the 

 end of seven years we have saved to our people thirty-two per cent 

 of the premium deposits based upon our initial cost, this saving being 

 in addition to the difference between the initial rates previously paid 

 to stock companies, and the rates at which the business came on our 

 books. Everything considered, directly and indirectly, it is safe to 

 say that the Alliance has saved to its subscribers fifty per cent, and 

 very likely much more than that, as compared with what they were 

 previously paying. The money paid to a stock company is irre- 

 vocably gone. 



A stock company's proposition is to sell to you the insurance out- 

 right at a fixed and stipulated premium. They say to you that they 

 will transfer to their shoulders the risk now borne by you, for so 

 much money. The inter-insurance plan is to keep the money among 

 the participants, pay out the exact necessary cost and retain the 

 balance to the credit of each policy holder proportionately. 



Stock companies do not apply a uniform rating scale in all sec- 

 tions. Their manner of rating is to establish several rating bureaus 



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