In the "Wealth of Nations" the author* expresses the philosophy and purpose of fire insurance in the following: " The trade of insurance gives great security to the fortunes of private people, and by dividing among a great many that loss which would ruin an individual makes it fall lightly and easily upon the whole society." Fire insurance makes commercial credit possible. "Without it business would be restricted to a cash basis and the future would be uncertain and unsafe. Fire insurance became a necessity when people began to accumulate property of a destructible character. Prior to 1666, the only sort of indemnity obtainable against loss by fire was to be secured in membership in guilds or associations having for their object, or one of their objects, mutual relief in case of fire loss. The great fire of London, however, which raged continuously for four days from September 2, 1666, opened the eyes of the world to the possibility of loss by fire. Insurance by individuals, which is a common practice in England at this time, became a business. Companies were organized and one of them established in 1696 has survived the test of time and is in existence today. Primarily, these companies were organized to extinguish fires in property belonging to members, which property was ordinarily marked by a tin sign. Incidentally the company assumed the loss by fire. The "fire department" idea soon passed away, and the insurance feature only remains; and it has become an integral part of our modern commercial structure.

*Adam Smith

Origin and Object

Lloyds.

There are three kinds of insurance institutions: 1. Lloyds* or Individual Underwriters, 2. Mutual Companies and (3) Stock Companies. In the Lloyds system an individual, or a group of individuals acting each in an individual capacity through a common attorney, enter into a contract of insurance. The insurer known as the "Underwriter" in this case, personally receives the premium and pays the loss, and the contract is just as good as the man or the men back of it. The noticeable disadvantage of this plan of insurance is the necessity, in case of disagreement as to the amount of the loss, of bringing legal action against each one of the individual underwriters separately. It is also difficult to ascertain the present or future responsibility of the underwriters who are obliged neither to make statements nor to maintain reserves for unearned premiums or other liabilities. In England, this system of Lloyds or individual insurance has assumed large proportions and has attained a recognized standing commercially. In the United States the system is comparatively unknown. Whether it can adapt itself to our conditions successfully, is yet to be seen.

In the mutual company every member assumes a portion of every other members' risk. The policy holders are the company. If a loss is sustained, the policy holders are assessed proportionately for the loss. Theoretically, this system of fire insurance should be workable; practically it has never been successful, except in a local or special way. Mutual fire companies confining their operations to localities where values are widely distributed, as in the case of farming communities, for instance, have lasted. It is also true that mutual fire companies, making a specialty of certain classes of isolated manufacturing properties have been successful. But the history of mutual fire companies, with the exceptions noted, has been unsatisfactory in the United States.

♦The term Lloyds originated from a coffee house kept by Edward Lloyds In Tower street, London, about 1688, where merchants and ship-owners were accustomed to meet, and responsible individuals would assume risks, either severally or jointly, for a premium consideration.

Mutual Companies

The stock company is the fire insurance company as we commonly know it. It is a corporation with a paid up capital. If conservatively conducted, it will also accumulate a considerable surplus for the conflagrations which are sure to come. This company files and publishes annually, statements of its condition. It is examined by the state periodically or on occasion, if an emergency arises. Its policies are of a standard prescribed by law, and its agents are licensed by the state in which they reside. The stock company is compelled by law to set aside a specified part of its premium income as "unearned premium." So far in the experience of this country, this system of insurance has appeared to be best adapted to our needs and most satisfactory for general purposes.

The legislatures of a number of the states have passed laws prescribing the kinds of policies that companies may use in those states. These are called standard policies. The so-called New York Standard Policy has been adopted in a large number of the states as the legal policy. In addition to this, many of the states have enacted statutes making it obligatory upon fire insurance companies to submit their books, vouchers and securities to the inspection of an examiner appointed by the governor of the state.

Stock Companies

The consideration in an insurance policy is called the premium. The premium is calculated at so many dollars or cents per $100 of insurance, which is known as the rate. For example, at $1.50 rate, $3,000 of insurance gives a premium of $45. This is the annual premium. Policies for shorter periods than one year are written at what are called short rates. If the annual rate is $1.00, the short rate for one month would be 20 cents; for two months, 30 cents; for three months, 40 cents, etc., the rate for the period becoming relatively smaller as the period approaches one year. There is an established table of short rates showing the rate for every possible number of days in the 365, composing the year. On certain classes of property, term policies, or policies for longer than one year, can be secured. On residence property, it is the prevailing practice to write two-year policies for one and one-half annual rates, three-year policies for two annual rates, and five-year policies for three annual rates. The entire term premium must be paid in advance, but the saving effected by this plan of term insurance is considerable, and amounts to a large interest on the anticipated portion of the premium, as may be readily ascertained by an easy calculation.