36 



HARDWOOD RECORD 



in the different sections of the country. Each of these bureaus makes 

 the rates in its section. It thus happens that different rating 

 schedules prevail and that in some parts of the country concerns in 

 the same line of business are paying higher rates for insurance than 

 in others. In the past this has sometimes been due to an active fight 

 in one section against other kinds of insurance, such as inter-insur- 

 ance. The Alliance is obligated to so apply its rates to the plants of 

 all participants that they will as nearly as possible represent the 

 relative differences in hazard among them. If the collections from 

 each participant prove to be more than the amount needed for each 

 fair share of the expenses, the excess amount is from time to time 

 returned in the form of dividends or savings. 



The Lumbermen's Underwriting Alliance is now carrying insurance 

 on some 364 or 365 lumber manufacturing plants. It has at risk 

 approximately $24,000,000. Our heaviest fire loss ratio was last year. 

 We are able to save to our people, as compared with our initial rates, 

 eighteen per cent. Five months of the year 1912 are now back of 

 us, and our fire losses for that period have only consumed one-eighth 

 of our premiums for the current twelve months, so that we stiU have 

 seven-eighths of our annual premiums left to pay the fire losses that 

 may occur in but a little over a half year. This showing was, of 

 course, unusual and remarkable. 



The Alliance has paid out in fire losses more than one million dol- 

 lars; have saved its subscribers over $500,000 out of its own 

 premiums, of vphich more than $200,000 has already been returned in 

 cash dividends, and it has today quick assets of over $650,000, con- 

 sisting of cash in bank, current outstanding accounts and gilt-edge 

 state bonds. Since its beginning the Alliance has been a great 

 restraining influence against the tendency of the stock companies to 

 advance rates. 



An understanding of the fundamental principles of insurance, and 

 the same principles underlie all insurance of every kind, makes it 

 plain and inevitable that the policy carriers in the aggregate must 

 of necessity pay all of the losses and expenses if the insurance is to 

 be sound. If stock companies, or any other schemes of insurance 

 doing business under the law, were to so reduce their rates that the 

 premiums would become inadequate to meet the losses and expenses, 

 there would be a deficit and such companies would be unable to meet 

 their obligations. They would be obliged to liquidate and go out of 

 business, or the stockholders would have to ' ' dig. ' ' 



Since, therefore, the policy-holders must supply the money in order 

 that the insurance be sound, it is certainly very much better for the 

 owners of mills to practice inter-insurance. They would then know 

 that they only have to bear their fair share of the fire losses, plus 

 the expenses, which are low. The total expense of administering and 

 operating the Alliance is twenty per cent. We are able to accom- 

 plish this work at the very low figure named because of the large 

 amount of insurance required at each of the plants, and their char- 

 acter, taken by tlie Alliance. There are no high-salaried officials; no 

 costly apartments, and no commissions to pay to agents. The cost of 

 the inspection service and all other expenses are being borne by the 

 attorney and manager, and paid by him out of the administrative 

 expense as provided for. 



I doubt very much if there are a suflScient number of veneer and 

 panel plants to give a general average among themselves. One 

 hundred properties at least are required before an undertaking of 

 this kind reaches even a basis on which percentage can be figured. 

 By general average is meant the almost unattainable complete aver- 

 age which brings to the cost of insurance its lowest average price. 

 This means the greatest number of properties insuring under one 

 medium, of like occupancy, of similar construction, exposure, etc., 

 and equipped with pretty much the same fire-protecting and fire- 

 fighting devices. 



To explain inter-insurance I have often before used this illus- 

 tration: 



If one man owned all of the plants scattered over the face of the 

 earth, operated for the same business purposes, that man would be 

 the possessor of fire insurance at its absolutely lowest obtainable 

 cost. He would not need to keep any books, as his premium would 

 be the exact amount of his loss by fire each year, and his rate would 



be ascertained by dividing the total amount of hazard into the total 

 of his annual fire loss. That man would not buy insurance from any 

 outside sources. No company could afford to sell it to him at so low 

 a figure. By the accident of ownership, one man does not hold the 

 title to all of these plants and therefore does not possess the advan- 

 tage as outlined in the imaginary ease just recited. 



Inter-insurance as practiced by the Alliance gives to each separate 

 owner the opportunity to procure his insurance at the same rate as 

 if all the plants were owned by one man, except that there being a 

 number of owners it is necessary that some one person shall adjust 

 the differences in interest due to the several ownerships. 



Before closing I can not resist the temptation to say that some of 

 the veneer plants are no doubt eligible to the Alliance. Many of 

 them are not at present eligible, but could be made so by improving 

 the water service and other things about the plant to conform to the 

 Alliance 's requirements. Some of you who are today paying heavy 

 rates have it in your power to ascertain for what deficiencies you 

 have been penalized, and in many cases it will be found that by 

 spending very little money you can reduce the cost of your insurance. 



I have in mind the establishment of another inter-insurance 

 exchange for wood-working plants that do not now quite come up to 

 the Alliance standard. It would be for the benefit of those manu- 

 facturers who were unable for this reason to obtain inter-insurance, 

 I would make such insurance available for them. We shall be glad to 

 investigate any of your properties should you desire it, and to sug- 

 gest to you how by the expenditure of small sums of money you can 

 improve your conditions. 



We issue a bulletin each month in which we give to our subscribers 

 a history of the origin and outcome of fires in the lumber manu- 

 facturing trade in the United States and Canada. We procure and 

 disseminate this information as to causes of fire not only from our 

 own subscribers, but from non-subscribers in order to educate our 

 policy holders as to the causes of fires and the conditions which 

 aided or prevented the control of the fires, so that Alliance sub- 

 scribers may remove menacing conditions and improve their prop- 

 erties in accordance with the lesson taught by the experience of 

 others. Our bulletin service, our inspection service and our plan of 

 insurance have proved a great boom to lumber manufacturers and 

 will do as much for such veneer plants as are today or will be made 

 eligible. 



Government Should Take Hold 



While it is impossible fur anyone, who has not actually visited 

 the flooded district in the South, to realize the enormity of the 

 catastrophe in that region, a partial comprehension of the damage 

 to the flooded territory and resulting harmful effect on the country 

 at large is within the power of anyone who has read the daily press. 

 The question of prevention and repetition of those conditions in the 

 future h,as occupied a great deal of thought, and the active co-opera- 

 tion of commercial bodies has been solicited. One sentiment which 

 seems to pervade the entire movement is that the southern states 

 alone should not bear the cost of so equipping the levees as to pre- 

 vent future floods. The contention is certainly reasonable inasmuch 

 as the Mississippi drains a vast region in the northern states, and 

 through its tributaries such states as Ohio, West Virginia, Kentucky, 

 etc., which are not particularly affected by high water. 



The question is undoubtedly one which will have to be worked out 

 by the Federal government if any uniform method of remedying the 

 difficulty is to be accomplished. That this bids fair to be done is 

 evident from the agitation along these lines in Congress and at the 

 two political conventions now in session. 



A bill recently introduced in the House provides for an entirely 

 new plan of improving and regulating the Mississippi river. The 

 bill proposed to enlarge the duties and powers of the government 

 over the Mississippi river by having it take over by cession all state, 

 county and levee districts where levees now are erected along Missis- 

 sippi banks from Cape Girardeau, Mo., to the head of the passage. 

 That under this plan the government could work out an adequate 

 system of protection, there is no doubt. 



