14 BULLETIN 530, U. S. DEPARTMENT OF AGRICULTURE. 
in farmers’ mutuals, although about seven-tenths of the companies 
are doing business successfully under this plan. It is argued that the 
apparently impossible might yet come to pass, that is, that losses in 
such number and amount might be experienced by a company that 
the necessary assessments would bankrupt the members who had not 
suffered fire losses. The fact is that in a farmers’ mutual company 
with a reasonable number of risks, located on separate farms, any- 
thing corresponding to a conflagration loss is inconceivable. The 
only exception would seem to be a frontier community in which ex- 
tensive prairie or forest fires were still possible. | 
REDUCTION AND CANCELLATION OF INSURANCE. 
Inasmuch as the value of the insured property of a farmer changes 
from time to time, it becomes necessary to provide in the contract for 
readjustment in the amount of insurance. The opportunity for such 
readjustment should be open to the insured as well as to the com- 
pany. The contract should provide also for the cancellation of the 
policy at the option either of the company or of the insured. No at- 
tempt should be made on the part of the company to retain a man 
who no longer desires to be a member, and it is absolutely necessary 
for the safety of the company to reserve the right arbitrarily to can- 
cel any policy upon giving fair notice. The reasons for the com- 
pany’s wish to cancel may be perfectly valid from a practical stand- 
point and yet be of such a nature that they can not be argued with 
the insured. Such is the case in practically every instance where 
a bad moral hazard is discovered. 
When cancellation takes place at the initiative of the insured, it 
is reasonable to charge him a short-term rate which is higher than 
the pro rata cost for the whole term of the policy. This is merely 
a proper recognition of the expense that the company has incurred 
in placing the insurance upon its books. The balance, if any, of the 
advance charges paid by the member, after the deduction of such 
short-term rate, should be returned. The by-laws should provide, 
however, that in case of voluntary cancellation by the insured follow- 
ing heavy loss experiences, he must be held liable for his share of all 
losses and legitimate expenses incurred by the company before such 
cancellation. Unless this is provided for there is the possibility that 
a member may cancel his policy because unusually heavy losses have 
been incurred which will make the next assessment higher than the 
average. 
When, on the other hand, cancellation takes place at the initiative 
of the company, only the pro rata cost of insurance for the time pro- 
tection has been given should be deducted from any advance charges 
paid by the insured. If a short-term rate is apphed under these 
conditions the insured is likely to feel that he has been mistreated 
and wilfully defrauded. 
