8 BULLETIN 530, U. S. DEPARTMENT OF AGRICULTURE. 



APPLICATIONS FOR INSURANCE. 



The most important single problem confronting a newly organ- 

 ized farmers' mutual fire insurance company is that of securing a 

 sufficient number of acceptable applications for insurance within a 

 reasonable distance of the home office. In passing upon applications, 

 the standard applied to risks must vary somewhat with the economic 

 development of the community which the company is intended to 

 serve. In a new or undeveloped community risks will have to be 

 accepted which, in a community more advanced in a material way, 

 can and should be rejected. The cost of insurance will be higher, 

 of course, in the undeveloped community, but since commercial rates 

 for insurance, if protection of this type is available on any terms, 

 will also be much higher, the saving through cooperative enterprise 

 in fire protection may equal or even exceed the saving accomplished 

 in the more advanced community. 



While the standards for the material forms of the risk may thus 

 vary to suit the locality, the requirements as to personal character 

 of applicants need not and should not vary. A thriftless or dis • 

 honest person has no place in a farmers' mutual insurance company. 

 When an individual is known to have these characteristics, it is the 

 duty of the management not only to avoid soliciting his insurance, 

 but to reject his application if it should be tendered. Those in 

 charge of the company have no right to endanger its stability in 

 order to avoid this unpleasant duty. Where mere suspicion of dis- 

 honesty exists and the management does not feel justified in reject- 

 ing an application for insurance and membership in the company, 

 special precaution should be taken to see that the property is con- 

 servatively valued. Even where no suspicion of dishonesty exists, 

 due care always should be exercised to avoid the creation of need- 

 less temptation through overinsurance, which frequently leads to a 

 bad moral hazard. 



With the above statements few, if any, of the men experienced in 

 farmers' mutual insurance will disagree. On the question of who 

 should solicit or accept applications, however, a variety of opinions 

 will be found. In about 35 per cent of the farmers' mutuals all 

 applications are taken by one or more special agents, and in an 

 additional 10 per cent of the companies applications are taken at 

 least in part by special agents. The other 55 per cent of the com- 

 panies restrict the right of taking applications to the directors ex- 

 clusively, to the officers exclusively, or to the directors and officers. 



The extent to which the cooperative spirit has been developed 

 in the community should be taken into consideration in deciding 

 upon ;i plan for securing business. It is believed, however, that 

 the plan of charging the directors with this duty, wherever it can 



