30 DEPARTMENT! BULLETIN 9!2t, 
an amount considerably greater than that required to pay the loss 
for that rear and to leave a part of the funds which they have con- 
tributed in the reserve fund of the company to be used to supple- 
ment the premiums collected in years when the hail hazard happens 
to be exceptionally severe. Unless a mutual company follows this 
plan, it is quite certain, assuming that it is operating in severe hail 
territory, to have to prorate its losses in years of heavy hail damage. 
There is. of course, no serious objection, either moral or legal, to 
the plan of prorating losses by a mutual company, providing all the 
members have joined with the understanding that such action may 
be expected in case the contributions to the company prove insuffi- 
cient to meet the losses incurred together with legitimate expenses of 
operation. The danger, however, is that the solicitors of insurance 
representing the company, in their desire to secure new members 
and to earn commissions for themselves, will permit and even en- 
courage the prospective insured to believe that the funds collected 
by the company are not only sufficient to meet all losses in full but 
that a rebate may reasonably be expected. Members entering the 
company with this understanding are of course sure to feel, when 
losses are prorated, that they have been the victims of misrepresenta- 
tion and fraud, even though the policy specifically states that losses 
will be prorated in case such action is found necessary. 
In any case, it has been the general experience of hail mutuals 
as well as of mutuals operating in other fields of insurance that 
whenever it has been necessary to prorate losses the membership in 
the years following such action has materially decreased. The man- 
agement of the company is almost invariably blamed for the failure 
to settle in full, regardless of the facts in the case. Many com- 
panies have failed to survive the prorating of losses even where such 
companies were managed by men whose integrity was unquestioned 
among those who knew them personally. 
Another problem in hail insurance which is not found to the same 
extent hi fire insurance mav be pointed out with particular reference 
to mutual companies. This difficulty, namely, that of democratic 
management and control of the company, arises from the fact that a 
hail mutual, as already stated, can not be operated successfully in a 
territory of small area. A possible exception to this rule mav he made 
in the case of certain districts where the hail hazard is relatively light 
and where the insurance covers, only one or two specified crops form- 
ing a minor part of the acreage of each farm. 
With a fire insurance mutual operating in a limited area, a certain 
degree of real cooperation in management is possible. Each member 
resides within a reasonable distance of the place where the annual 
meeting is held, and is therefore in position to be present and to make 
his influence felt at such meeting in case he chooses. "With the hail 
mutual, on the other hand, which very properly operates in an entire 
State, or perhaps in several States, it is not possible for the average 
