20 UNITED STATES - INSURANCE AND THRIFT 



the community have been interested in it. Twenty-five States now pro- 

 vide in a separate division of their insurance laws for the incorporation of 

 farmers' mutual fire insurance companies. In most other States such com- 

 panies can be incorporated under the laws referring to mutual fire insurance 

 companies in general. 



In any case the organizers are required to set forth, in a form usualh^ 

 known as the articles of corporation, the name of the proposed compan5^ 

 the situation of its headquarters, its purpose, its territorial sphere, its con- 

 ditions of membership, an outline of the proposed form of its management, 

 and the conditions allowing its articles of corporation to be amended. 



As soon as incorporation has been accomplished a set of by-laws should 

 be drawn u|), and should describe the nature and purpose of the organiza 

 tion in so far as these are not contained in the articles of corporation. 



The fact that a company is organized to prevent the disastrous inci- 

 dence of losses does not mean that it should exempt losers from all the con- 

 sequences of their losses. A reasonable part of a loss should always be 

 borne by the loser, in order that it should be to his interest, above that of 

 all others, that his property remain in existence, and that his strongest 

 incentive to safeguarding it should oe retained. There is otherwise a dan- 

 ger that a slight change in economic conditions ma}' make it directly to his 

 pecuniary advantage that his property be destroyed. 



b) Territorial Sphere. — There has been on the part of legislatures in 

 recent years a growing tendency to allow a wide territorial sphere to mu- 

 tual companies. Several States now allow them to operate over an entire 

 State. The tendency of the companies to avail themselves of this privilege 

 has been somewhat less marked. The ambition of a company to grow by 

 extending its territory as well as by adding to its risks witliin its existing 

 territory seems natural, but there is danger that the extension will have un- 

 desirable results. In general the interest and pride taken by the community 

 in a farmers' mutual compan}'' give it an advantage. Each individual mem- 

 ber actively promotes the interest of the organization, is anxious to see all 

 losers receive equal justice, is usually satisfied with a reasonable indem- 

 nity if he himself suffer a loss. The knowledge which members have of 

 one another's character and business tends to minimize the moral hazard. 

 An unscrupulous mefnber, who would be quite ready to occasion loss to a 

 large insurance company, perhaps in a distant city, is likely to hesitate 

 before ine throws loss on his neighbours. Many of the local mutual 

 companies have done business for half a century or more without a single 

 lawsuit. Such a record would rarely be pos.sible except in the case of a 

 company founded on true co-operation and attaching to itself directly the 

 interest of the community. However if risks be confined to a limited 

 territory an important saving is efl'ected in the travelling expenses of di- 

 rectors, ins]^ectors and adjusters. 



c) Ihe Board of Directors and the Officers. — Kxcept where local condi- 

 tions require a certain grouping or distribution of directors, nine directors 

 form a board of convenient size and should be divided into three equal groups. 



