44 CANADA - INSURANCE AND THRIFT 



The expenses of the private companies in 1916 averaged 30 per cent of 

 their premium inconK'. Since the losses were equivalent to about 132 per 

 cent, of such income they owed, at the end of 1916, 162 per cent, of the 

 total amount they had received in this year. The position was sufficiently 

 serious, yet vastly less so than that of tlie Municipal Insurance Commission 

 which, in spite of its much more economical administration, would have 

 had to pay 394 per cent, of its premium income in order fully to indemnifj^ 

 losses at the rate of $ 5 an acre. 



The private companies were able to meet all claims on them from their 

 reserves. The Mimicipal Hail Insurance Commission was under no obli- 

 gation to pay f uU compensation at the $ 5 an acre rate, for a clause, already 

 cited, of the Act of 1912 provides that if the Commission consider that its 

 revenues do not permit of full payment it shall meet claims pro rata. Only 

 the 127 municipalities which were under the Act before 1916 had an}- claim 

 to the reserves accumulated from surplus income before that year. It 

 was calculated that the Commission was in a position to indemnify the 

 farmers of these 127 municipalities for their losses at the rate of about 

 S 2.15 an acre ; and those in the remaining thirteen municipalities, who 

 had no claim on the reserves, at that of about .S 1.30 an acre. Indemni- 

 fication at these rates could not go far to compensate for the actual loss, in 

 view especially of the fact that the destruction of a large part of the crop 

 would enormously raise the price of seed. 



b) Defects of the Scheme. 



i) As regards the causes of the breakdown the first defect in the mu- 

 nicipal hail insurance scheme brought to light b}' the breakdown of 1916 was 

 that it had been based on an inadequate estimate of risks. 



The rate of premium allowed for an average annual loss of 4 per cent, 

 of the total crop. The loss in 1913 was 3 per cent., in 1914 it was i ^/^ per 

 cent, in 1915 it was 2 per cent. : the average annual loss for these three 

 years was therefore 2 V^ per cent. But in 1916 the loss was 10 per cent, 

 and thus for the four years the annual average was 5 per cent, or i per cent, 

 in excess of the estimate. Hence the failure of the scheme. It is stated 

 that an absolute annual average should be calculated on a period of from 

 fifty to sevent3"-five j^ears, and that no period of less than twenty-five years 

 can give dependable data. 



2) The scheme was therefore speculative. It was so in a second re- 

 spect because while it competed with firms affording absolute insurance, the 

 measure of insurace it actually gave was hypothetical, being limited by the 

 pro rata clause. It is clear however that the commissioners advertised their 

 benefits as equivalent or superior to those afforded by the private compa- 

 nies, and that the insured farmers considered that their crops were unre- 

 servedly insured against hail at the rate of $ 5 an acre. Further the pubHc 

 character of the scheme seems to have given some of these farmers an idea 

 that their compensation at tliis rate was guaranteed by the government. 

 Thus a mass meeting held at Venn after the breakdown of the scheme 



