§ 8. Farmers' mutual insurance. Property insurance may be viewed as an aspect of enterpriser's cost,2 but may also, as may any insurance, be considered a form of saving. The premium paid each year may be looked upon as a sum prudently saved and laid aside to repair or rebuild the house when later it burns. Let us suppose that the chance of any one house being destroyed by fire in any one year is 1 in 500; then, on the average, the owner of each house would in 499 of the years have no loss from fire and the other year would lose the whole house. If the loss could be mathematically distributed over 500 houses, each house would burn down 1/500 each year, never more nor less, and fire loss would be a regular cost of repair. If no provision is made for this, the actual income of each owner in his lucky years would be .2 per cent greater (estimated on the capitalization) than, on the average, is the net income of the whole group of owners. A prudent owner of one house, understanding this, could only in small measure protect himself against this loss by setting aside each year $2 for each $1000 of valuation, for any year his whole house might burn down, long before he had laid aside its valuation. If, however, one man owned 500 houses of equal value, so situated that no two of them could ever catch fire from the same cause, and if in fact fate so distributed the fires that just one house burned down each year, his loss would be actually distributed in time according to the mathematical probability. If 500 different owners of houses, alike but each located apart from all the others, band together, they become collectively like one owner of 500 houses as regards the chance of loss in any one year. Still better, if 10,000 owners unite, the distribution of losses will approach much more closely to the mathematical probability.

2 See Vol. I, pp. 365 and 374.

In fact, a very simple application of this idea has been made in the insurance of farm property. It was a not uncommon custom in agricultural communities in America for the neighbors to band together to help rebuild a house that had been destroyed by fire, or to take up a collection for the family that was in distress. Insurance affords a more regular, equitable, and effective way of accomplishing the same purpose, and likewise is a cooperative enterprise of neighborhood good-will. There are now about two thousand farmers' mutual fire insurance companies in the United States,3 with $6,000,000,000 of insurance in force, insuring the property usually up to a maximum of two thirds of the estimated true value. Usually the organization of these companies is simple, their officers unpaid, the overhead expenses very small, and the operations of each company limited to a small area, a township or at most a county.

Premiums are usually not collected, or even determined, in advance; but, the losses having been determined at the end of the year, the amount is collected pro rata in propor -tion to the face of the policies in force. More often of late, to add to safety and to equalize variations in losses from year to year, a small reserve is laid aside, $3 per thousand dollars of insurance in force being deemed ample for this purpose. Otherwise this is pure assessment fire insurance, and is not only very inexpensive, but very generally safe and convenient. This cooperative plan is, however, less suitable in an urban neighborhood, because of the concentration of risks.

3 These figures were collected by V. N. Valgren, investigator in agricultural insurance for the United States Department of Agriculture. They do not include a large number of similar companies that carry risks other than farm property to an extent, greater than 35 per cent.

Mutual hail insurance companies provide on a similar plan indemnity for the destruction of growing crops. Forty-one such mutual companies were in existence in 1919, and in recent years have collected premiums ranging from $3,000,000 to more than $6,000,000 a year. The smaller measure of success of these, as compared with the mutual fire insurance companies, is largely due to the irregularity of the losses from year to year and their wide extent when they do occur. The risks are not distributed in a manner suitable for neighborhood insurance, and mutual companies that are not organized and managed in a neighborhood are less honestly and efficiently run. In the attempt to improve conditions, four states (the two Dakotas, Nebraska, and Montana) had hail insurance departments and collected premiums (in the year 1919) of more than $6,000,000, paying losses of three fourths of that amount, and setting aside a surplus. Mutual and state hail insurance premiums are virtually collected on the assessment plan, but it has been found best to collect a definite amount in advance, and, in case of unusual losses, to pro-rate among the losses the premiums collected. The plan of mutual property insurance is likewise being applied to live stock and other farm property.

§ 9. Joint-stock insurance of property. Much the largest part of insurance against fire and other causes of property losses is carried by joint-stock companies, or by so-called mutual companies. Though these companies have, like banks, more of a public character than have most businesses, and are subject to special legislation and supervision by state officials, they were organized and are conducted primarily for the profit of the owners. Even in many rural districts, especially where conditions are unfavorable to mutual companies, the joint-stock companies have large amounts of insurance in force, and in urban communities they all but completely obtain the business. The joint-stock fire insurance companies4 collect each year in the United States $700,000,000 in premiums on risks to the value of more than $72,000,000,000. The premium rate thus averages about 1 per cent. In 1917, a fairly representative year, substantially this group of companies returned to the insured, in payment of losses, only 48 per cent of the premiums received, used 34 per cent for expenses, and applied the remaining 18 per cent either to dividends or to surplus. The dividends were nearly 15 per cent of the capital stock (a considerable portion of which represented stock dividends in previous years) and the increase in assets 84 per cent of the capital of the preceding year. When it is considered that 20 per cent of all premiums received are paid in commissions, and that in the case of the higher officials the salaries and commissions run to very large amounts, it appears that the insurance business is exceedingly profitable to the fortunate few in control of these organizations. The starting of new companies is now attended with increasing risk and cost, so that the existing companies occupy, in some respects, a monopolistic position. Another large group of stock companies (about 200) engaged in casualty, surety, and miscellaneous insurance, very rapidly growing in magnitude and importance, now collecting more than one third of a billion dollars a year in premiums, returned (in 1919) to the policy-holders

4 National Board tables for 1917, published in the "Insurance Year Rook," 1918, p. 448. The Spectator Company. Mostly fire insurance, but including marine, automobile, and other business, see also, p. 540.

41 per cent ("including all expenses in connection with payment of claims") and expended 40 per cent on actual expenses of management.