CEOP insueance: eisks, losses, etc. 23 



as the company is willing to give him. To a large extent, the com- 

 pany for the same reason can give justice as between good and poor 

 land "as well as between good and poor farmers in a particular local- 

 ity, merely by an adjustment of the amount an acre written, and 

 without making any change in the rate of premium. This plan is 

 not uniformly applicable, however, for the reason that climatic con- 

 ditions make wide variations from the average yield much more 

 frequent in some localities than in others. 



The best method of determining the indemnity due in case of loss 

 raises an equally difficult question and one quite as important as that 

 of determining the amount of insurance that may be written. The 

 first of the three forms of contract outlined provides that in case 

 the yield an acre valued at the price stipulated in the policy does 

 not equal the amount of insurance an acre, the company will indem- 

 nify the insured to the amount of such difference. Under this plan 

 it is of no financial consequence to the company whether prices go 

 up or down. The risk involved in price fluctuations, in so far as it 

 affects income from yield obtained, rests entirely on the farmer. A 

 simple illustration will make this point clear. 



A farmer insures his wheat at $7 an acre under this plan. The 

 wheat is valued by agreement in the policy at $1 a bushel. By rea- 

 son of drought or other cause the yield is reduced to 5 bushels an 

 acre. The indemnity due under these conditions is $2 an acre, re- 

 gardless of whether the local market price of wheat at harvest time 

 is $0.75 or $1.50 a bushel. If the lower price prevails, however, the 

 farmer will receive only $3.75 for the 5 bushels harvested, while he 

 will receive $1 a bushel for each of the two bushelsj that he fell 

 short of 7 bushels, the quantity in effect guaranteed him. His total 

 income an acre will be $5.75. If, on the other hand, wheat sells, for 

 $1.50, the amount harvested will be worth $7.50, equal, with the $2 

 indemnity, to $9.50 an acre. To the company, however, it makes nO' 

 direct difference whether prices advance or fall except as the col- 

 lection of premiums not fully paid in advance may be affected. 



In the case of the second form of policy outlined, this situation 

 becomes essentially reversed. Assume that a farmer insures his 

 wheat at $12 an acre under this plan, which, as against the hazards 

 covered, guarantees him a yield that at market price will equal the 

 amount of insurance. In case of total destruction of his crop he 

 will be paid for such operations and such investment as have been 

 already made in connection with the destroyed crop. Suppose, how- 

 ever, that by reason of one or more of the hazards insured against, 

 the yield is reduced to 8 bushels. If the wheat at harvest time sells 

 for $1.50 or more, no indemnity will be due, since the amount har- 

 vested will bring a return equal to or greater than the sum stipu- 



