STANDING TIMBER INSURANCE 



557 



year, reports yearly losses as follows: 1912, 1 / 10 of 1 

 per cent ; 1913, 1 / 20 . of 1 per cent ; 1914, no report ; 

 1915, Vio of 1 per cent. The St. Maurice Valley Fire 

 Protective Association of Quebec, with an area of eight 

 million acres on which they spend ft oi I cent per 

 acre per year, reports the following losses : 1913, ft of 

 1 per cent; 1914, ft of 1 per cent; 1915, when one big 

 fire got away, lft per cent. These being the large repre- 

 sentative private associations in four widely scattered 

 sections of our country and Canada. 



Even the fire hazard, represented in the popular mind 

 by a general conflagration, a more accurate statistic will 

 show (when compared with the value of the remaining 

 timber stand in the states in which they occur) is a small 

 percentage of the whole value involved. Minnesota with 

 a forest wealth valued at 280 millions, during the last ten 

 years has had a computed loss each year of only $100,000, 

 or about 1 / 3i of 1 per cent annually. Maine, with a valua- 

 tion of 100 millions of timber, lost for four years, from 

 1909 to 1912, $64,000 annually, or 7 16 of 1 per cent. 

 In the United States Forestry Bulletin No. 117, entitled 

 " Forest Fires," it states that in 1891, a very bad year 

 for fires before there was any protection, the annual 

 loss throughout the United States was $25,000,000. If 

 the 550,000,000 acres of timbered area in the United 

 States was worth at that time on an average of $5 an 

 acre, this would be a little less than 1 per cent loss yearly. 



Conflagration hazard for insurance purposes could be 

 counteracted by the distribution of small individual risks 

 widely placed over various sections of the country among 

 many owners under various climatic conditions, giving 

 preference, if possible, at the start to a country broken by 

 settlement, and in which the yearly losses prove to be the 

 most uniform, like New England. Past computations 

 usually have paid small attention to the fact that a con- 

 siderable percentage of such fires occur in cutover and 

 so comparatively worthless lands, and that where burned 

 timber was reasonably near to market much salvage 

 could be taken. Estimates also included value destroyed 

 in young growth and the burning of the soil, which set 

 back the productivity of the land. While these two 

 losses are very real, and in the end should be protected by 

 insurance, for immediate practical reasons soil and 

 growth are not included in this paper. It is true that 

 there are foreign timber insurance companies in Ger- 

 many and Sweden which insure young growth and soil 

 as well, but the method of computing values is so com- 

 plicated, with its growth tables, species, methods of 

 management, expectation values, markets, etc., that it is 

 not practical or applicable to American conditions now, 

 and is impossible. 



All told, there are 92 million acres with more or less 

 private protection and 187 million acres with more or 

 less public fire protection, or, in other words, about half 

 of the timbered area of the United States. In 1913, 

 statistics show that public and private agencies spent a 

 little less than a million dollars on 250 million acres, being 

 four-tenths of a cent per acre annually. Insurance should 

 be restricted to the areas which are adequately protected. 



To meet the difficulty presented by law in some states 

 to the establishment of fire insurance companies, calling 

 for immense reserves to assure the great values tied up 

 in timber, the difficulty of obtaining charters from legis- 

 latures conforming to multitudinous requirements, the 

 difficulty of restrictions placed upon doing an interstate 

 business, it is possible to form an inter-insurance associa- 

 tion Jike so many that are now operating among owners 

 of timber yards, saw-mills and other industrial proper- 

 ties in the United States, with no record of failure. The 

 inter-insurance associations, like the mutuals, are con- 

 ducted at cost for the individual subscribers by crediting 

 back the unused balance of premium to each account 

 yearly. But unlike the mutuals, by doing no outside 

 business, or business for profit, they are subject neither 

 to Federal or State supervisory boards, and are easily 

 organized and controlled by a board of supervisors. Busi- 

 ness is done under the management of a single, mutually 

 appointed attorney-in-fact, who acts separately for each 

 subscriber. The office where this is done is called an 

 exchange, as it is there that insurance is exchanged 

 amongst subscribers. Legal opinion as to this has been 

 given by Hon. John T. Barker, attorney-general of Mis- 

 souri, on May 7, 1914, and Mr. Stites, corporation lawyer 

 of Washington, D.'C, in October, 1914. Some of such 

 successful inter-insurance associations are the Lumber 

 Manufacturers' Inter-Insurance Association of New 

 York, with 300 members, attorney-in-fact, Wilcox, Peck 

 & Hughes ; Lumbermen's Exchange, Kansas City, Mis- 

 souri, attorney-in-fact, J.W. Garvey& Company ; National 

 Lumber Manufacturers' Inter-Insurance Exchange, at- 

 torney-in-fact, Charles F. Simanson, Chicago, Illinois, and 

 many others. 



Granted that the average annual loss to standing 

 timber would be about ft of 1 per cent, and that the cost 

 of management of an association would be about ft 2 of 

 1 per cent more, as is customary in the companies above, 

 the usual rates charged by commercial insurance com- 

 panies for ordinary risks running from 1^4 to 3 per cent, 

 the difference between these two of ft 2 to 2 per cent saving 

 would form a sum sufficient to set up a reserve, which 

 in a short time would be ample, if the individual risks 

 were kept small and widely scattered, and only a limited 

 line of insurance were written for each subscriber. After 

 such a reserve was established, the subscribers would 

 receive the unexpended amount of the premiums each 

 year, or receive insurance at cost, retaining meanwhile 

 partial ownership in the reserve. Reserves required are 

 commonly l /ao or tne amount insured, premiums paid 

 in yearly are commonly from 2 to 3 per cent, actual 

 insurance and management should cost about 1 per cent ; 

 the insurance allowed on one risk should be limited to a 

 very few thousand dollars, or, if a large line is desired 

 by one subscriber, it might be offered if each risk was 

 widely separated from all others in zones predetermined 

 by the association. 



The question then arises, could timberlands stand 

 the 1 per cent premium needed for loss by fire and man- 

 agement ? In a strictly forestry sense, they could not, as it 



