Chapter III: Fire Insurance

The growth of the business of fire insurance since 1880 or thereabouts has been commensurate with the increase of wealth and of commercial activity in the foremost nations, while the practice of it has also become general in countries in which it was formerly little known. The statistics of the subject have in recent years become far more full and more accessible than formerly; partly because many governments require detailed reports of resources, receipts and expenditures from all companies permitted to establish agencies within their jurisdiction, and periodically publish summaries of the returns; but also largely because the companies seek the widest publicity as their best means of advertising. It is to be regretted that there is as yet no uniformity of method in these returns; while some of the most important elements of the subject are not sufficiently illustrated for the student in the published statistics. Many companies of the United Kingdom transact business throughout a great part of the world, and there is no means of determining how much of their receipts or their losses must be referred to Great Britain. Further, they fail to give classified amounts at risk, so that it is impossible to estimate with any confidence the total sum for which any kind of property, such as dwellings, factories, household goods, stocks of merchandise or wares in transit, is insured. The returns of the London Fire Brigade, however, which is in part maintained by regular contributions from the fire underwriters at the rate of L35 for each L1,000,000 of risks assumed by them within the metropolitan district, continue to exhibit a regular growth. The aggregate amount insured in the metropolis was reported as follows:--

In 1882 L696,715,141
1886 741,109,316
1890 806,131,385
1895 858,899,409
1900 963,291,097
1905 1,034,819,587

It appears probable that the rate of increase here shown is not greater than the actual growth of insurable property during the same period, so that it may be reasonably supposed that the custom of protecting all exposed property by insurance was already general in London many years ago. But the transactions of the British fire offices have grown much more rapidly, and indicate that, outside of the metropolitan district, the practice of insurance has extended greatly. The returns show that there is a tendency to concentrate the business in the control of large capital and experience, for practically all the premiums received and losses paid were shared by thirty-one companies, although there are at the same time a greater number of corporations of foreign countries with agencies for fire insurance in the United Kingdom; but many of these do but a nominal amount of business, and twenty-three of them are exclusively or chiefly engaged in re-insurance. This tendency has been a marked feature in the later history of fire insurance everywhere. The companies which are now in the field are the survivors of tenfold as many projected enterprises which have failed. The records of about two thousand organizations for the purpose, in America alone, which have undertaken the work and disappeared within fifty years, show the dangers to which inadequate skill and capital are exposed. But a small proportion of these failures were the direct result of sweeping disasters, though about seventy of them followed the memorable fires in Chicago and Boston in 1871 and 1872. Many more, nearly one-half of the whole, have followed a short career, in which the helplessness of inexperience to compete with long training and complete organization was demonstrated. Many hundreds of these projects were mere speculations or even frauds from the beginning; and the better education of the community at large in the principles and methods of insurance has been the chief agent in checking such enterprises, aided by the stringent legislation of several countries and of the United States in America and by the criticism of the press.

The difficulty of establishing a new joint-stock fire insurance
company is far greater in the present highly perfected state of the
business than formerly, and constantly increases. The reports of the
state insurance departments in America show that less than one-eighth
of the premiums are now collected by companies founded since 1880;
and, except in districts remote from the principal financial centres,
or mutual associations for special classes of hazards, new companies
are not often formed. In Great Britain a considerable number of new
corporations are registered every year, with fire insurance among
their professed objects, but almost always in connexion with some
forms of casualty insurance, which appear to be practically the
purpose in view. The reports of the fire business in the United
Kingdom for recent years, as collected in _Bourne's Manual_, show that
less than one-fourteenth of it is done by companies organized since
1870. Though new companies have been registered, usually several every
year, the number actually transacting successful business has not
increased since 1880. Of the various British companies now recognized,
the twelve smallest together collect but 1% of the premiums received
by one of the largest, and the tendency to concentrate the business
seems progressive. These facts are explained by the necessity of a
vast basis of average and of a large capital for security, and still
more by the increasing demand for a thoroughly trained and organized
body of agents, able to protect their companies from fraud and
imposition, and at the same time to compete for public patronage.

Mutual system.

The _Mutual_ principle has a strong attraction for many insurers and projectors. When a large number of pieces of property, so distributed that a single fire cannot destroy a considerable proportion of the whole, are yet owned and controlled by persons who can fully trust one another, both for financial responsibility and for good faith, there may be no need of a large capital in hand, nor of much of the costly machinery required for general competition. A contract for the assessment on all the property of losses as they occur, at rates fixed by the estimated exposure, may form a safe basis for an association. The fixed payments may be limited to necessary expenses, with a moderate reserve for emergencies, all excess of collections to be returned to the insured. This simple conception of an insurance association, with such modifications as experience indicates, has been accepted for a time as ideal in almost every civilized community, and attempts are continually made to realize it, but in the vast majority of instances with complete failure as the result. Like every other product of human skill, insurance is, for the most part, best supplied to the market by those who make it their calling to produce it for gain. But while the mutual plan has proved poorly adapted to the general service of the commercial world, in some communities, and especially among the owners of certain classes of property, it has achieved great and apparently permanent success. This is particularly true of manufacturing districts, in which numbers of mills and factories are exposed to peculiar danger of fire by the nature of their own operations. The best safeguard they can have is by employing great skill in the construction, arrangement and conduct of their works. A group of such properties, associated for the prevention of loss, is naturally stimulated to highest efficiency when the whole group undertakes to bear all losses which are not prevented, and thus every member has a strong interest in making the protection complete. It is in associations of this character that the mutual plan of fire insurance has rendered its greatest services. The mutual plan has been widely adopted also in local associations for the insurance of dwellings and farm improvements, where the individual risks are small, and where technical classification and special safeguards against fraud are not considered necessary, often with the result of affording satisfactory protection at low rates. But the ratio of this part of the business to that conducted by joint-stock companies diminishes from year to year, even in the agricultural and rural districts of the United States. According to the reports of the insurance departments of the states, as summarized in the Spectator Company's Year-Book, more than half of the cash premiums of mutual insurance companies are collected in the two manufacturing states of Massachusetts and Rhode Island.

It is, after all, only within a very limited field that the mutual principle can be adopted. The essential principle of fire insurance is the distribution of loss. It does not aim, directly at least, at the prevention and only in a secondary way even at the minimizing of loss; but what it seeks to accomplish is that such losses shall not fall exclusively, and possibly with overwhelming effect, on the owner of the property destroyed, but shall be borne in easy proportions by a large number of persons who are all alike exposed to the risk of a similar catastrophe. To work out the equitable solution of such a problem an amount of technical skill and extended experience is required which few bodies or communities possess. Certainly, experience in Great Britain has shown that the one system of fire insurance which has contributed most to the public benefit is that which is conducted by joint-stock companies, offering to the insured the guarantee of their capital and other funds, and looking to make a profit by the business. In France, Belgium, Holland, Russia and Norway, also, the joint-stock plan is almost exclusively employed.

Such an opinion must be qualified by observing that, under the
fostering influence of the national and municipal governments, the
mutual plan has reached an important development in Austria-Hungary,
Germany, Switzerland and Sweden. In all these countries, indeed,
corporate enterprise on a large scale, in every branch of business, is
of comparatively late growth, and mutual fire insurance was a familiar
practice long before joint-stock companies entered upon this field of
activity. The tendency in the large cities and commercial centres is
to throw new insurances into the business corporations, while the
time-honoured mutual associations retain their standard character and
customary clientage. But in these countries the mutual plan has an
established place in the confidence of the rural population, who are
generally strongly prejudiced against moneyed corporations. This is
especially true of the cantons in Switzerland and certain districts in
Austria-Hungary, where fire insurance is administered by the local
governments in connexion with a minute police supervision of the
construction of buildings and of other conditions affecting the risk.
From the published returns of the companies and the authorities, as
collected for the _Post Magazine Almanack_ (1900), it would appear
that of all the fire insurance premiums paid in Switzerland nearly 54%
is collected by the mutual associations and the cantonal authorities;
while in Italy 37%, in Germany 27%, in Sweden 27% and in the
Austro-Hungarian monarchy 20% go to mutual companies.

Lloyd's.

The earliest plan of insurance which was successful as a business was that practised at Lloyd's Coffee-house (see LLOYD'S) in London, and there applied almost exclusively to marine risks. Although the association known as Lloyd's has been for generations a strong financial institution, with every modern safeguard, and since 1871 has been a chartered corporation with large funds, yet its name has become accepted as the symbol of the primitive practice of combined underwriting by individuals, each upon his own credit, for a share of the risk and without common liability.

A few associations on this general principle were known to exist in
America, and to issue fire policies on a small scale, before 1892, but
chiefly for mutual insurance. In that year, in a general revision of
the insurance law of New York, such associations already in existence
were expressly exempted from all its provisions. Speculators at once
discerned an opportunity. If a company by omitting to take corporate
form could carry on the business free from all restrictions and burden
of state supervision, it would compete at great advantage with the
insurance corporations. While the new law was in prospect there was
time to take action; and upon its passage there suddenly appeared a
multitude of "organizations" claiming the exemption as Lloyd's, or
associations of individual underwriters, and offering fire policies at
rates materially lower than those of the joint-stock companies. Each
of these was represented and managed by an attorney for the
subscribers, supposed to have power to bind them severally to the
amount of their subscriptions. The standard policy prescribed by law
in New York was issued, with a clause making the liability several
only, and fixing the amount. The Lloyd's entered the market with the
zeal and prestige of a new idea and a great name, and they grew
rapidly in number and in business, but made no reports. Extending
their agencies into other states, they occasioned much litigation
concerning their legal existence and rights and some rash and
inharmonious legislation. But several attempts to establish similar
Lloyd's in other places failed. Experience soon showed that it was
impossible to enforce claims in the courts, when the liability was
distributed among many, without excessive expense and delay, even when
all the subscribers were solvent, while a few good names, however
useful in canvassing, were no guarantee of the responsibility of
unknown associates. In 1896 the executive and legal authorities of New
York assumed a hostile attitude towards speculative schemes of this
class, and indictments were found against a number of promoters for
falsely antedating constituent agreements. The bubble burst suddenly,
and within three years more than one hundred of the Lloyd's
disappeared. A few reinsured their risks or were merged in permanent
companies, but the mass of them proved to have no substance. Four or
five only of the best Lloyd's continue to issue fire policies within a
narrow and special circle, but as a group they no longer compete for
general business.

The rate of premium varies with the supposed risk, but certain descriptions of property are specially and more elaborately rated. This has been done to a considerable extent by common agreement amongst the offices, and the arrangements are known as the "tariff system," which requires here a few words of explanation.

We may suppose the question to arise, What ought to be paid for insuring a cotton-mill, or a flax or woollen mill, or a weaving factory, or a wharf or warehouse in some large city? The experience of any one office scarcely affords adequate data, and a rate based on the combined experience of many offices has a greater chance of being at once safe and fair. The problem, indeed, is a more complicated one than what has been already said would indicate. The property to be insured may consist of several distinct buildings and the contents of them: one building may be devoted to operations involving in a high degree the risk of fire; in another the processes carried on may be more simple and safe; a third may be used only for the storage of materials having little tendency to burn. Fairly to measure these various hazards it has been found necessary that the experience and skill at the command of many companies shall be combined, and that the rates shall be the result of consultation and a common understanding.

Now it is clear that no office will contribute its skill and experience to such a common stock if the effect is to be that other offices may avail themselves of the information in order to undersell it. Consultation about rates and a common understanding necessarily involve a reciprocal obligation to charge not less than the rates thus agreed on; in other words, a tariff of rates is developed to which each office binds itself to adhere. The system tends to restrain and moderate the competition for business which inevitably and to some extent properly exists among the companies, and its value to them is manifest. But it is also of service to the insuring public. At first sight it might seem that free competition would suit the public best, and that a combination among the offices must tend to keep up rates, and to secure for the companies excessive profits, but a little consideration will show that this is a mistake.

It is an unquestionable truth, though one often lost sight of, that all losses by fire must ultimately be borne by the public. The insurance companies are the machinery for distributing these losses, nothing more. If the losses fell on them, their funds, large as they are, would speedily be exhausted, and the service which they render to the public would come to an end. To those who require insurance against loss by fire it must be a manifest advantage that they should have many sound and prosperous offices ready to accept their business, and no less able than desirious to earn or to retain the public favour by fair and liberal conduct. A necessary condition of this state of things is that the rates of premium paid for insurance should be remunerative to the offices, and the main object of the tariff system is to secure such remunerative rates.

This it endeavours to do by two methods--by an agreement as to what rates are to be charged, and by affixing such a penalty to dangerous constructions, substances and processes as to induce, if possible, a lessening of the danger. In other words, and reversing the order, it seeks to diminish the risk of fire, and to secure adequate payment for what risk remains. On the supposition that the offices are correct in their estimate of risks, the effect, and indeed the intention, of their rule is not so much to put money into their own coffers as to lessen the danger, and to save themselves in the first instance, and the owners of property ultimately, from the consequences of preventible fires.

These rules, as will readily be seen, must have powerful influences on
trade and manufactures. Many individual warehouses and mills are, with
their contents, insured for very large sums, L10,000, L20,000,
L50,000, L100,000 and more. An additional charge of 5s. or 10s. % in
respect of a supposed increase of risk may mean a payment by the owner
of several hundred pounds a year, and may operate as a complete veto
on some arrangement or some machine which it might otherwise be
desirable to resort to. The occurrence of a few severe fires in one
town, followed by an increase of insurance rates, may have, and indeed
has had, the effect of driving some branch of trade to another
locality, the seat of greater caution or better fortune. It is
therefore obviously desirable that so important an influence should be
exercised, not precariously or capriciously, but according to the
combined wisdom and experience of those associations which may be
supposed to understand the subject best, and which obtain their
experience in the way that makes it perhaps of most value, by paying
for it.

It is equally for the public benefit that rates of insurance should be
fixed on some common scale. Suppose the system of unrestricted
competition to be tried, the first effect will be a general and great
reduction in rates. But it may be said, "So much the better for the
insured; if the offices can afford this reduction of rate, it will
only be a fair result of competition; if they cannot afford it, they
will be the losers, but the public will gain; will the effect not be
simply to reduce the rates to the paying point and no further?" This
would be all very well if the paying point could be absolutely
ascertained or determined in any way beforehand, but the rate comes
first and the losses come afterwards. In other businesses prices are
based on some certainty as to the cost of production, but in selling
fire insurance the cost is not known till after it has been sold. In a
free competition it is the sanguine man's views which regulate the
market price, and the rates therefore cease to be remunerative. The
consequences are that some offices disappear altogether, others take
fright in time to avoid ruin, though not to escape serious loss,
persons who might establish new offices are deterred from doing so,
the business gets the character of being a highly speculative and
hazardous one, requiring extravagant profits to induce men to carry it
on at all, and the public have to bear the cost. Unrestricted
competition therefore is not for their advantage.

The combination for uniform rates has another beneficial effect; it
serves to distribute the burden of losses fairly. If it is a just
thing that cotton-spinners should bear all the losses that arise in
cotton-mills, and not leave them to be borne by the owners of private
dwelling-houses, or vice versa, it is well that the loss by each class
of risks should be measured fairly. But, while the experience of any
one office, taken by itself, furnishes a very imperfect criterion,
each contributes its quota of knowledge and experience to the common
stock, and the public get the benefit both of broad and trustworthy
data and of that peculiar and intimate acquaintance with each
different class of property or process which the conductors of one
company or another are sure to possess.

No conventional or excessive rates can, however, be maintained for any
length of time. Some member of the union is sure to perceive that
popularity and profit may be gained by introducing a lower rate, if a
lower rate is manifestly sufficient, or a new company starts into
existence to remedy the grievance. It is to be remembered, too, that
the directors and shareholders who control the offices are likewise
insurers, quick to raise the question of how far the rates they have
to pay as individuals are justified by the risks run; and if it cannot
be shown that these rates are a true measure of the risk, offices are
soon constrained by a sense of justice or by self-interest or by
pressure from without to mitigate them. In short, the association is a
union bound together by necessity and tempered by competition.

Adequately to measure the risk of loss by fire demands not merely
reference to an extended experience but a watchful regard to current
changes. While the profits of fire insurance business fluctuate
considerably from year to year, and seem even to follow cycles of
elevation and depression, the tendency on the whole appears to be
towards a growth of risk, although excessive competition among offices
prevents the rates from rising in proportion.

Tariff difficulties.

The _Tariff_ system has steadily developed in minuteness of classification and in adaptation to wider experience, as well as to the changes in the character of many classes of risks by improvements in building and by the introduction of new kinds of goods and machinery. The estimates of risk and the determination of premiums are largely governed by individual opinion and by competition, no amount of experience furnishing a statistical basis on which trustworthy predictions of average loss can be made. Hence it is only by constant co-operation among insuring institutions in the exchange and combination of their observations that justice can be done to them and to the public. The proper extent of this co-operation is easily attained where the business is free from all restrictions except those of the common law, as in Great Britain, and the competition of capital for profits is keen enough to keep the rates within reasonable limits. But in countries in which the government regulates the business in a more paternal spirit, and meddles with all its details for the avowed purpose of securing the safest and best public service, many difficulties arise. This is increasingly the case in several of the nations of Europe, notably in Austria, Switzerland and Germany.

But it is in the several states of the United States that the
government supervision of insurance has most interfered with and
modified the natural development of the business. In recent years,
beginning with 1885, sixteen of these states have enacted legislation,
dictated by the growing jealousy of corporate powers and privileges,
forbidding fire insurance companies or their agents to combine in any
form for the determination of rates. Companies have often been
indicted, fined and deprived of authority to issue policies because of
membership in associations for the purely scientific purpose of
ascertaining their average experience. The courts have frequently
narrowed in their interpretations the sweeping intent of such laws,
but have generally sustained them as within the power of the
legislature, and at the present time there is an overwhelming public
sentiment in large sections of the country arrayed against every
semblance of union or consultation among the companies upon the basis
of their business. In several instances all the important insurance
companies have withdrawn their agencies at once from particular
states, and the business community has been sorely distressed for want
of their protection. But the popular prejudice has not yielded to its
demand, and the companies have never been able to maintain their own
position with unanimity, the temptation to secure a vast business upon
any terms being always too strong for some of them to resist. This
form of legislation has beyond dispute increased the cost of insurance
to the people, while it has embarrassed and disturbed the regular work
of the companies.

Another pernicious tendency of popular legislation in the United
States is found in the _Valued Policy laws_, the first of which was
adopted by Wisconsin in 1874, providing that when any insured building
is wholly destroyed by fire the amount of the policy shall be
conclusively taken as the amount of the loss. This principle, with
various modifications and extensions, has become law in some twenty
states of the Union, though in many of them its enactment has been
vigorously resisted by the executive government; several governors
have vetoed such bills, while most of the supervising officers have
had the intelligence to disapprove them. The provision is regarded by
all insurance authorities as highly dangerous, inviting over-insurance
and incendiarism; and there is no doubt that it has this tendency in
many instances. But the statistics available, while showing that in
general the rate of loss has increased where such laws are in force,
do not demonstrate any such wide and ruinous stimulation of fraudulent
practices as has been apprehended by thoughtful critics. The actual
result is commonly to throw upon the insurer the responsibility for
providing in advance against over-insurance by minute surveys and, in
special cases, for continual watchfulness against depreciation. Like
all other interference of government with private contract, however,
it has a marked effect in increasing the difficulty and expense of
business transactions.

Need of co-insurance.

The direction in which fire insurance as a social institution calls most pressingly for improvement is the extension of the principle of co-insurance. The importance of this can only be understood by remembering that the aggregate losses of the community by fire are chiefly made up of innumerable small fires and not of sweeping conflagrations. The experience of every company confirms the general truth, that the number of fires in which a building is totally destroyed, or in which the loss amounts to the greater part of the property exposed under the same risk, is comparatively very small. It may be asserted with confidence that, in the grand aggregate of the business, much more than three-fourths of the loss occurs in fires in which less than one-tenth of the insurable value at risk is destroyed. The practical result is obvious. If fires destroy a million of dollars' worth in property insured for its full value, and a million's worth more in property insured for one-tenth of its value, the insurers will pay $1,000,000 upon the first group and more than $750,000 upon the second. But if all the insurance is taken at the same rate the insurers will have received premiums ten times as great on the former group as upon the latter. This rough illustration shows that in an equitable adjustment of rates the amount insured as compared with the value exposed is a prime element, and that premiums might justly form a scale, highest on the smallest fractions of value, and diminishing rapidly as the percentage of insurance increases. Such a scale is, however, impracticable for many reasons, apart from the endless complications which, even if it could be constructed, it would introduce into the classification of risks. Any scientific plan of insurance, therefore, must provide another method for maintaining the proportion between amounts of premiums paid and the share in its benefits obtained for them. This is the purpose of what are generally called _average_ or _co-insurance clauses_. The principle is, that when a proper rate for a class of risks is found, then the insured may protect at that rate any percentage of such a risk, and in case of fire shall be indemnified for the same percentage of his loss. When once clearly grasped, this principle largely simplifies and rectifies the business. It is in universal use in marine insurance under the name of "average," and is there recognized as indispensable. It is embodied in all fire policies in France, Germany and several other countries of Europe, and in 1826 was made compulsory in Great Britain by law in all "floating policies," those, that is, which cover stocks of goods distributed in several places and in fluctuating amounts. But it has not yet become general in Great Britain or America, although every writer of authority on the subject, and every practical underwriter of large experience, approves it. Systematic attempts have been made since about 1892 to extend its application in the United States with much success, but they have been met by strong opposition, which shows a widespread misunderstanding of its true bearing.

The co-insurance clause, indeed, which has been generally approved by
the American associations of underwriters, and applied in the great
commercial cities, is less sweeping than the parallel agreements used
in France and Germany. The latter regard the insured owner as
self-insurer for the entire value at risk not covered by the policy,
and grant indemnity only for that fraction of the loss which the
amount insured bears to the whole amount exposed. The American clause
is less logical, commonly providing that: "If at the time of fire the
whole amount of insurance on the property covered by this policy shall
be less than 80% of the actual cash value thereof, this company shall
... be liable only for such portion of such loss or damage as the
amount insured by this policy shall bear to the said 80% of the actual
cash value of such property." But this limitation of the basis of
co-insurance average to 80% of the total value is in perfect harmony
with the conservative policy which seeks in all cases to prevent
over-insurance. The most serious danger to which the entire system is
open is that a fire may promise profit to the insured. To avoid this,
it is a small enough margin to exclude from protection by the policy
one-fifth of the estimated value, and to require the owner to assume
that proportion of the risk. It is therefore reasonable not to require
in any case a larger share than four-fifths to be covered, and not to
press the co-insurance principle so far as to offer a differential
advantage to those who insure above this limit. Thus, for practical
purposes, and in the general mass of business, the 80% clause may be
accepted as approximately the best application of the principle. It
makes possible substantial equity in distributing the cost, while it
does not interfere with proper safeguards against over-insurance. The
cordial support of the mercantile community in the great cities, and
of the most intelligent state officers, has been given to it.

A popular outcry has, however, arisen against all forms of
co-insurance, on the superficial and mistaken assumption that in every
case the principal sum named in the policy measures the insurance paid
for by the premium; and that any limitation upon it must be a wrong to
the insured, for the emolument of the insurance corporation. No less
than ten states have passed laws prohibiting the clause within their
jurisdiction, though Maine in 1895, after a trial of two years,
repealed the prohibition. The law of Tennessee, a typical form, is as
follows: "Insurance companies shall pay their policyholders the full
amount of loss sustained upon property insured by them, provided said
amount of loss does not exceed the amount of insurance expressed in
the policy, and all stipulations in such policies to the contrary are
and shall be null and void" (except in case of insurance upon cotton
in bales). In several states the use of the co-insurance clause is
made a penal offence. It is an interesting fact, however, that while
this principle, whenever it has been generally applied, has led not
only to a fairer equalization of premium rates, but, on the whole, to
a marked reduction of them, the laws in question have deprived the
people adopting them of the resulting benefit. In the year 1899 the
average premium rate upon all fire risks written in the states in
which co-insurance was wholly or partly prohibited was something more
than $1.20 per $1000, while in the rest of the country, where the
clause was permitted and to a large extent used, the rate was but 96
cents per $1000. The marked difference, which tends to increase, is a
perpetual object-lesson which must in the end appeal strongly to the
popular intelligence.

Taxation of insurance.

The varying attitude of several civilized governments towards the institution of insurance has found significant expression in their tax laws. In Great Britain a stamp duty of 6d. was imposed in 1694 upon "every piece of vellum or parchment or sheet of paper upon which any policy of insurance should be engrossed or written," and was doubled in 1698. It was further increased (reaching 3s. 10d. per policy in 1713) and varied by many subsequent acts, under some of which the percentage duty on fire insurance was also made payable by stamps upon policies. But in 1865 the stamp tax was finally reduced to the nominal sum of 1d. upon each policy. A far heavier burden, however, was imposed upon insurers by the measure of Lord North in 1782, charging all fire insurances in force with an annual duty of 1s. 6d. for every L100 insured. In 1815 the general rate was made 3s. per L100, but was collected once for all upon the policy when issued; and it so remained until reductions began in 1864. The duty was wholly abolished in 1869. The revenue from this source reached its highest point in 1863, when it was L1,714,622, presumably representing insurances effected in that year to the amount of L1,143,081,333. There are no data for determining the amount of premium receipts or of losses realized on the same volume of insurance; but the tax was recognized by economists as well as by all parties to the policy contracts as an excessive burden. In many instances it more than doubled the cost of insurance. Its effect in discouraging the prudent custom of insuring against fire was very serious, and after its abolition this custom extended so rapidly that it soon became, and continues, practically universal in Great Britain. Upon the continent of Europe fire insurance is generally taxed quite heavily; most so in France, where the direct duties on the premiums, together with the registry and stamp taxes paid by the companies, have been estimated to add one-fourth, or perhaps one-third, to the cost of insurance.

In the United States the companies are taxed, each by the state in which it is domiciled, upon their real estate, and often upon their capital, surplus of profits, and are required in other states to pay fees to the insurance departments, and commonly an excise of from 1 to 2(1/2)% of their premiums. An elaborate table is prepared each year by a committee of the National Board of Fire Underwriters, showing the aggregate amount of taxes paid by the companies operating in New York in comparison with their receipts and profits. The statement received and published by the board in 1900 contained the following:--

+--------------------------------+-------------+----------------+
| |For the Year |For Twelve Years|
| | 1899. | 1888-1899. |
+--------------------------------+-------------+----------------+
| Premiums (fire and marine) |$134,450,639 | $1,425,929,631 |
| Losses paid (fire and marine) | 91,031,677 | 856,978,494 |
| Expenses | 52,849,129 | 517,667,238 |
| Increase of liability (unearned| | |
| premiums, &c.) | 8,998,526 | 59,104,388 |
| Net loss in the last year | 18,428,693 | .. |
| Net profit in twelve years | .. | 7,820,489 |
| Amount of taxes paid | 4,495,332 | 35,984,081 |
| Taxes were of premiums | 3.34% | 2.52% |
| Taxes were of premiums, less | | |
| losses | 10.35% | 6.32% |
+--------------------------------+-------------+----------------+

In qualification of this statement, it may be said that the reported expenses appear to include taxes, and that the additions charged, to liability are to some extent theoretical and flexible. It also appears from the state reports that upon the entire capital and net surplus of $191,000,000 employed in the business in the United States by 316 joint-stock companies, dividends to the amount of $8,000,000, or 4.2%, were paid in 1899 to shareholders. Nevertheless it is true that competition among the companies, together with unfriendly legislation, has reduced the profit upon their aggregate capital near the vanishing point, and that the taxes, the average rate of which increased 50% within the period 1891-1899, are heavier in many states than can be justified by public policy or by the analogy of other corporate interests. The true principle, doubtless, is that while the capital employed in insurance for gain ought to contribute to the state the same share of its profits as other capital, yet the premiums, agencies, policies and entire machinery representing only losses, and providing for their distribution, should be exempted, as far as the necessities of the public treasury permit.

One aspect of the taxation of fire insurance is of especial interest,
namely, the very general disposition of legislatures and municipal
authorities to impose upon the underwriters the cost of fire
departments. The systematic prevention and extinguishment of fires are
everywhere assumed to be proper work for the community at large. But
the first license granted by the crown to issue insurance policies in
London in 1687 was conditioned upon regular contributions by the
authorities to support the king's gunners as a fire brigade, and in
the public mind the privilege of insuring the prudent has ever since
been vaguely associated with the duty of guarding the property of the
whole community. The voluntary support of fire patrols by the
companies in London, New York and other cities has done much to
promote this view; and a substantial part of the taxes paid upon fire
policies in the United States is levied for the support of fire
departments, the pay and pensions of firemen and similar purposes. The
tendency to increase such taxes, under the pretext that the protection
afforded is for the special benefit of the companies, is strong in
some of the states; though it would be equally rational to compel life
insurance companies to maintain general hospitals for the sick.

Statistics.

The most complete statistics of the fire insurance business collected in any country are those presented in the _United States_ to the National Board of Fire Underwriters at each annual meeting. The following summary of part of the information submitted by the committee on statistics, 10th May 1900, giving the amount of fire risks insured in the United States, premiums received for them, and losses paid upon them, by all joint-stock fire insurance companies for the year 1899 will serve as an example:--

_Fire Insurance in the United Slates. Joint-Stock Companies._

+--------------+----------------+------------+------------+----------+--------+----------+
| | Fire Risks | Fire | Fire | Premiums |Loss per| Loss per |
| Companies. | assumed. | Premiums | Losses | per $100 | $100 | $100 of |
| | | received. | paid. | of Risk. |of Risk.| Premiums.|
+--------------+----------------+------------+------------+----------+--------+----------+
| | $ | $ | $ | $ | $ | $ |
| American 218 | 12,251,299,499 | 93,577,169 | 59,119,018 | .7638 | .4826 | .6318 |
| Foreign 35 | 6,087,570,275 | 42,958,472 | 29,865,014 | .7057 | .4906 | .6975 |
| All 253 | 18,338,869,774 |136,535,641 | 88,984,032 | .7445 | .4852 | .6517 |
+--------------+----------------+------------+------------+----------+--------+----------+

These returns do not include mutual companies. The compilers of the _Insurance Year-Book_, however, obtain from the several state departments of insurance the reports of all companies made to them of the business done within each state; and from these it appears that in 1899, for example, 160 mutual companies assumed fire risks to the amount of $1,119,772,848. Many small local associations have made no returns, but their operations are too limited to materially affect the aggregate. It is noteworthy that while mutual companies transact less than 6% of the business of the whole country, yet in the state of Rhode Island, a densely peopled manufacturing community, they have more than 78%, and in Massachusetts nearly 24%; and that, while less than one-ninth of the insured property of the United States is situated in these two states, they contain nearly two-thirds of that which is insured by mutual associations.

The fire insurance business of foreign companies in the United States
was comparatively small until 1870. Four strong British corporations
were then in the field, and their transactions amounted to less than
9% of the entire joint-stock business. But their success attracted
others in rapid succession, especially from Great Britain and from
Germany, and in 1880, 19 foreign companies assumed 23.7% of all the
risks reported to the National Board; in 1889, 23 such companies took
30.3%; and in 1899, 35 such companies took 33.2%. The distribution of
the business among them is not given by the board tables, but can be
gathered from the reports of the American branches to the insurance
departments of the states, which are summarized in the Spectator
Company's Year-Books. The total net payments of the British and
colonial fire insurance companies in connexion with the disastrous
fire in San Francisco in 1906 amounted to over ten million pounds,
and the prompt settlement of all claims strengthened considerably
their position in the United States.

In the _United Kingdom_ the statistics of fire insurance are less accessible and less complete, no official records being made of the local distribution of the property insured, while the published accounts of the companies are not sufficiently uniform and detailed to make a trustworthy summary of the entire business possible. Much of it is done by foreign companies, of whose British business we have no separate statement. A statement of the revenue accounts of the various British companies insuring against fire will be found in the annual _Insurance Blue Book and Guide_.

In the _Dominion of Canada_ the insurance companies make detailed reports to the government bureau, and the statistics of the business are full and accurate. The following table shows the aggregate business of five companies in the Dominion in 1869 and 1907:--

+-----------+------------+---------------+------------+--------------+------------+
| | Net Cash | Amount of | Amount at | Amount at | Losses |
| Companies.| Premiums | Policies | Risk in | Risk in | paid. |
| | received. | taken. | 1869. | 1907. | |
+-----------+------------+---------------+------------+--------------+------------+
| | $ | $ | $ | $ | $ |
| Canadian | | | | | |
| Companies| 54,849,706 | 5,663,696,931 | 59,340,916 | 412,019,532 | 36,073,543 |
| British | | | | | |
| Companies|159,372,986 |14,745,342,255 |115,222,003 | 937,240,828 |105,203,259 |
| American | | | | | |
| Companies| 32,449,482 | 2,801,078,045 | 13,796,890 | 265,401,198 | 20,129,323 |
| All | | | | | |
| Companies|246,672,174 |23,210,117,231 |188,359,809 |1,614,661,558 |161,406,125 |
+-----------+------------+---------------+------------+--------------+------------+

Upon the _continent of Europe_ the fire insurance business is conducted partly by local companies in each country and partly by the great international offices of Great Britain and Germany. The local associations in Austria, Germany and Switzerland are of three classes--public assurance organizations connected with local governments, private mutual companies and joint-stock companies. It is impossible to obtain balance-sheets of all, nor is any information available concerning the local distribution of the risks, or the whole amount of property insured. The capital employed by stock corporations in this business in each country, and the aggregate premium receipts and payments for losses in the last year of which a report is available will be found in the annual _Post Magazine Almanack_.

While most of the fire insurance business in the _Australian colonies_ is in the hands of British companies, local institutions for the purpose have had a considerable development on the same general lines as in Great Britain and with similar freedom from interference by the governments. But no accounts of the receipts and losses are available, most of the companies conducting a marine or life insurance business, or both, under the same general management.

Beyond the limits of the great commercial nations, no satisfactory
information is accessible concerning the practice of fire insurance.
Even in Spain and Portugal there is far less intelligent interest in
the subject than in neighbouring countries, and the agencies of
foreign companies transact much of the business in the large towns.
Six Portuguese companies have maintained themselves for many years, a
few of them for nearly a century, and have established agencies in the
Spanish islands and in Madeira. For other nations than those
mentioned, the only systematic effort to collect the facts is made by
the compilers of the _Year-Book_, and the results are extremely
meagre. The great British and German corporations are zealous in
extending their transactions to the commercial ports everywhere, and
local companies are often formed in the British colonies. In addition
to those in Canada and Australia some companies in South Africa have
become financially important. Small native companies have been
successful in establishing their credit in Japan, Brazil, the
Argentine Republic, Chile and Peru. A considerable business is done in
insuring the property of foreign residents in the Levant, on the
coasts of Asia, in South Africa and the Pacific Islands, but mostly by
European companies, and as an incident to the more general practice of
marine insurance. There are several successful fire companies among
the Dutch in Java. The small business in Mexico appears to be wholly
in the hands of foreign companies.