THE GENERAL CONDITIONS OF INSURANCE ACxAINST FIRE 35 



a) Fire Insurance and State Control. 



The problem of the organ which shall fix insurance rates has found in 

 the United States two opposite and irreconciliable solutions : one presup- 

 poses that competition secures the most equitable tariff, the other that 

 it is reached by an agreement among companies. 



In New York city a rate agreement was made in 1821, but by 1825 

 new companies had so increased competition that it was abandoned. In 

 1826 an association was formed for similar purposes but it had ceased to exist 

 in 1843. In 1866 an effort of far greater scope brought about the formation 

 of the National Board of Fire Underwriters, composed of seventy-five com- 

 panies whose common purpose was to " establish and maintain as far as 

 practicable a system of uniform rates of premium ". A rating bureau was 

 organized b}' the National Board, and the United States divided it into six 

 territorial departments for the purpose of rate-making. In 1868 thirty- 

 seven leading companies entered into the " Chicago Compact ", pledging 

 themselves to remove any local agent upon his second conviction for violat- 

 ing National Board rates. But it was officially although reluctantly ac- 

 knowledged that there was no general adherence to rates and they were sus- 

 pended. In 1877 the rate-making function of the board was abandoned in 

 favour of local and sectional boards of fire underwriters, which have conti- 

 nued to be important factors until the present time. Practically the whole 

 country is now organized by a group of associations and bureaus. The 

 objects of these associations are : i) to provide a common organization 

 which efficiently performs for all companies work each of them once per- 

 formed individually, and thus economizes labour and expense; 2) to estab- 

 lish uniform rates of commission to brokers and agents ; 3) to form a pro- 

 tective alliance against sudden changes in the insurance law of States ; 4) 

 to standardize rates and rating systems, preventing discrimination between 

 localities, classes of risks, kinds of policies and persons. 



There was a certain public suspicion of these underwriters' associa- 

 tions on the ground that they constituted trusts detrimental to the general 

 interest. Hence arose, the anti-trust statutes and anti-compact laws in many 

 States wldch are inspired by the principle that insurance rates should be 

 fixed by competition. 



The universal effect of periods of open competition, wherever and when- 

 ever they have occurred, has been a cutting of rates to a point below the 

 actual cost of the indemnity. Unrestrained competition leads ultimately 

 to monopoly through the elimination of the weak or unfortunate and the 

 survival of a few large and strong companies. Since it allows two different 

 companies to quote different rates on the same risk laws have been passed 

 requiring corporations doing business in a State to file a schedule of rates 

 with a State authority and requiring that there be uniform premiums for 

 all risks writen under the same schedule. Such a law was passed in Arkan- 

 sas in 1913. A second type of law required the filing of rates with the su- 

 perintendent of insurance and invested him with power to order excessive, 

 unreasonable or inadequate rates to be changed. Such a law was passed in 



