CKOP insueance: risks, losses, etc. 21 



jnore than his net income in leaner years. Such an arrangement 

 would insure his ruin rather than his success. 



This illustration, of course, applies particularly to forms of insur- 

 ance covering hazards which are not subject to human control. Cer- 

 tain kinds of insurance, such as that against fire, loss of live stock 

 by disease or accident, and, even more, certain forms of casualty 

 insurance, involve the buying of a service in the nature of loss pre- 

 vention as well as a guarantee of indemnity in case loss occurs in 

 spite of preventive measures. In such cases, insurance might be 

 2)rofitable even when premiums collected are relatively large in pro- 

 portion to the indemnities distributed by the company. In the case 

 of crop insurance, however, the service of the company consists not 

 in loss prevention but merely in the collection of funds and the dis- 

 tribution of these funds as indemnities to those who suffer loss. 

 Under such circumstances the expense item must be only a minor 

 part of the total cost to the insured if the purchase of protection is 

 to prove a wise investment. 



Three relatively distinct forms of crop-insurance policies based 

 on the methods of determining the amount of insurance to the acre 

 and the indemnity due when losses are incurred were outlined on 

 pages 16 to 18. Under the first of these plans the insurance an acre 

 is made an arbitrarily fixed and uniform sum for each acre insured. 

 Under the second plan the maximum insurance an acre written is 

 determined on the basis of actual investment in the crop by placing 

 a specified value upon each operation in preparing the soil and 

 tilling and harvesting the crop and adding to this sum a reason- 

 able allowance for seed and rental value of the land. Under the 

 third plan the average yield on the land in question during the past 

 five years, coupled with the price of the product during the same 

 period, is made the basis for determining the amount of insurance. 



The first of these three methods of determining a proper amount 

 of insurance to the acre has the advantage of extreme simplicity. 

 Obviously, however, the unmodified plan could not be applied to 

 a wide range of crops in different sections of the country without 

 either greatly underinsuring some risks or overinsuring others. For 

 general application some method of adjusting the insurance an acre 

 to the investment involved, or the crop value, is essential. 



The question may then be raised: Is the investment in the crop 

 as determined by the number and cost of the field operations per- 

 formed plus seed and rental, or the average income over a period 

 of former years as determined by yield and price, the better basis 

 for arriving at a safe and proper amount of insurance to be written? 



As between these two methods, the first may be said to be the 

 easier to apply in so far as the agent writing the insurance is con- 

 cerned. The field operations already performed or to be performed 



