HAIL INSURANCE ON FARM CROPS. 19 
operation are proportional to the number of risks rather than the 
premiums, the expense ratio should tend to vary inversely with the 
rate of premium. The biggest single item of expense in connection 
with an insurance policy, however, namely, the commission to the 
agent who solicits the business, is generally based directly on the 
premium collected and not on the number of risks written. While 
such commission in the case of hail insurance written at a prede- 
termined rate is now very generally fixed at 15 per cent of the pre- 
mium, formerly as much as 20 per cent of the premium or even more 
was paid for this service. Assessment mutuals pay their agents, as a 
rule, on the basis of risks written. 
Some of the hail mutuals operating on the assessment plan limit 
the liability of their members and at the same time reserve to them- 
selves the right to prorate their losses if the income from maximum 
assessments, together with any reserve on hand, proves insufficient to 
meet losses and expenses incurred. Other hail mutuals, operating, as 
a rule, in States where the hail hazard is less severe, write unlimited 
liability contracts on the plan followed by nearly three -fourths of 
the farmers' mutual fire insurance companies. Still other hail mu- 
tuals collect a fixed premium somewhat below the commercial rates 
for the territory in question, while the policy provides for a con- 
tingent liability on the part of the insured equal to the fixed premium. 
Under this plan the insured may in some years have rebated to him 
a part of the fixed premium already paid, while in severe years he 
may be called upon for a part of the obligation assumed under the 
contingent liability clause. This plan has been found desirable more 
particularly for territory where the hail hazard is severe and where 
annual advance-payment policies are the rule. 
No matter which plan is used with reference to the. contribution 
or liability to contribution by the insured, a wise and conservative 
management of a hail mutual demands that a reasonable reserve 
be provided in years when losses are relatively light against the 
years when relatively heavy losses will be incurred. This is, of 
course, the plan aimed at by the joint-stock companies, who neither 
reduce their charges nor give any rebate because a given year brings 
losses only half, or even less than half, of the average annual losses 
for the territory in question. No hail mutual operating on the fixed- 
premium plan should place its rates at so low a point that they will 
not amply care for an average loss experience for the territory, plus 
reasonable operating expenses, plus a fair contribution to the reserve 
fund. In a year of very light losses a part of the surplus premiums 
may, of course, be returned to the insured as a rebate ; but before such 
rebate is declared a liberal addition to the reserve should be made. 
This plan should be adhered to until the company has on hand re- 
serves equal to at least the average annual premium income. A hail 
mutual operating on the assessment plan should similarly add to 
its reserve fund each year in which its losses represent for its ter- 
