702 JOURNAL OF I'ORESTKV 



The systems which have been most generally used are based on the 

 analytic method. Risks are classified into a few broad groups, for each 

 of which a standard risk and a standard base rate are fixed, largely 

 by judgment. The component elements of risk (construction, occu- 

 pancy, exposure, protection) are subdivided into subf actors which 

 affect the hazard. One widely used plan uses more than 3,000 of 

 these factors. Then charges or credits are fixed, largely by judgment, 

 for variations from each of the subfactors as specified for the standard 

 risk. In rating a particular risk, its subfactors of hazard are analyzed 

 and the proper charges are added to and credits subtracted from the 

 base rate. Although both the base rate and the charges and credits are 

 theoretically based on actual fire experience, in practice they are not, 

 and cannot be, except in a general way. This method attempts to 

 estimate the cost of the specific risk — that is, the rate for each risk 

 is based on the chance of loss of that particular risk. This method is 

 admittedly not scientific, but is considered to be fairly consistent. 



It has for some time been realized that there can be no permanent 

 and satisfactory solution of the rating problem except one based on 

 actual experience — on fire statistics. In order to give the law of 

 averages room for play, and also to avoid giving the conflagration 

 risk undue weight, it is necessary that rates should be based on the 

 combined experience of a large number of companies (preferably all), 

 over a fairly long period and for the whole United States. The 

 National Board of Fire Underwriters, through its Actuarial Bureau, 

 established in 1914, has undertaken to collect and compile the expe- 

 rience of its member companies, and has published a plan for classi- 

 fying and rating risks, which is intended to be the standard for 

 measuring insurance costs in the United States. This, known as the 

 Experience Grading and Rating Schedule, recognizes these principles — 

 that rates must be based on experience ; that no two risks are exactly 

 alike, therefore the risks in each class must be graded according to their 

 comparative qualities ; and that experience demonstrates the cost not of 

 specific risks, but of the average risk of each class. 



OUTLINE OF STANDARD E. G. R. SYSTEM. 



In this system classification and grading of risks are based on the 

 following considerations : 



All losses are due to one of three fundamental hazards : occupancy — 

 the use of space for storage, carrying on trade or manufacture, living, 



