UC-NRLF HD , DEP B 3 113 13E DOCUMENTS DEPT. ^^^'^yi^M^o. SENATE REPORT No. 370 OF THE -n <; JOINT SPECIAL RECESS COMMITTEE ON WoEKMEN's Compensation Insueance Rates AND Accident Peevention. February, 1917. ^ -JafTjsT' BOSTON: WRIGHT & POTTER PRINTING CO., STATE PRINTERS, 32 DERNE STREET. 1917. J fV\V ^%i^ EiVvOi'j^'-'ti 'iC»^ •., . . . • . • ••• • « • • ! * • ••• - • ®()c Commontocaltl) of iHassacljuseto. REPORT OF JOINT SPECIAL COMMITTEE ON WORK- MEN'S COMPENSATION INSURANCE RATES AND ACCIDENT PREVENTION. To the Honorable Senate and House of Representatives of the Commonwealth of Massachusetts. The Joint Special Committee on Workmen's Compensation Insurance Rates and Accident Prevention appointed under joint order of the Senate and House of Representatives, adopted June 2, 1916, has the honor to submit herewith its report. The purpose of the Legislature in providing for the appoint- ment of the committee was outlined in its order as follows: — ... to investigate the subject-matter contained in the message of His Excellency the Governor, printed as Senate Document No. 444, with special reference to the problems of rate making and accident prevention under the provisions of chapter 751 of the Acts of the year 1911, known as the workmen's compensation act, and acts in amendment thereof and in addition thereto. The message of His Excellency the Governor, so far as it per- tained to the question, was as follows : — Executive Department, Boston, April 21, 1916. To the Honorable Senate and House of Representatives. By an act of the year 1913 the Legislature created a Joint Board, com- posed of the Board of Labor and Industries and the Industrial Accident Board, charged with the duty of bringing about a reduction in the number of occupational injuries and diseases. It was designed to secure this re- duction in two ways : first, by the studj^ of mechanical safety appliances, and, in co-operation with the employers of labor, securmg their adoption in the places of employment; and second, by inculcatmg so far as possible the thought of care so that such injuries and diseases might be prevented bOliTOS .'. :.;;4-;.-.; ;; COMFJiNSATION INSURANCE RATES. [Feb. t m t by precautions not mechanical, but which the individual worker and em- ployer would follow. The operations of this Joint Board have not proved effective in any material degree. This results largely from the fact that each Board has a separate jurisdiction of its own. The meeting of the Joint Board is held only once in a fortnight, and the statistics that have been collected relating to accidents and to occupational diseases have not even been digested and intelligent deductions draVrTi from them. There are about 500 deaths caused each year by accidents in the industries of Massachusetts, and about 125,000 injuries which are not fatal. It is believed that this dejjlorable number of deaths and injuries may be re- duced by one-half by the adoption of precautions which are obtainable. It is fairly deducible from the experience of manufacturing concerns in this State and other parts of the country that the number may be reduced in that ratio. This is a subject of such great importance to the workers of the Commonwealth, and to its industries and to the broad subject of workmen's compensation, that it may be said to lie at the foundation of that system. I recommend that an act be passed transferring the powers and duties of this Joint Board to the Industrial Accident Board, and that the In- dustrial Accident Board be empowered to appoint a deputy or some other officer who shall act under its direction and control for the purpose of furthering the administration of said jurisdiction now exercised by the Joint Board and of securing a reduction in the number of occupational injuries and diseases. Such a deputy or officer should be provided with a salary sufficient to attract the services of a man thoroughly qualified to perform the very important duties of the position. One step in securing a reduction in the number of accidents would be taken by establishing a merit rating for the employers according to the safety appliances and precautions put in force b}^ them, so that they might have the benefit of a reduction of the number of injuries in lower rates of insurance. Such a system already prevails in fixmg the I'ates in case of fire insurance, and the policy holders may have their rates very greatly reduced by the adoption of appliances and systems for the pre- vention and for the stopping of fires. It has already been initiated and it should be much further extended in workmen's compensation insur- ance. A system so rational would have the co-operation of the emploj-ers and the workers as well as of the msurance companies. The law provides that the Insurance Commissioner shall require the fixing of adequate rates for workmen's compensation insurance. The companies, of course, should not be permitted to indulge in unrestricted competition by the adoption of rates which would not be adequate to the insurance they extended, and v/hich might result m the destruction of weaker companies and the creation of insurance monopolies, and an ulti- mate increase in rates. But, on the other hand, they should not be re- quired to exact a greater rate from their policy holders than was reasonably adequate to pay the expense of the msurance. The law at present con- 1917.] SENATE — No. 370. 5 templates the establishment of a rate which is adequate, and it stops there, and does not concern itself with the maximum rate. Thus there is no adequate protection in law to the insured against excessive rates. If the play of natural forces is to be set aside in order to protect the com- panies, why should it not be set aside in order to protect the employers? So long as the Insurance Commissioner is to have the power over com- pensation rates wliich he does not have over rates in other forms of in- surance, I recommend that the Legislature consider the advisability of establishing standards for the adequacy of compensation rates, to the end that unreasonable rates may not be permitted. The Legislature has wisely increased the compensation established by the original act, and reduced the waiting period from fourteen to ten daj^s. It was urged that such increase would not result in an increase of insurance rates. But clearly the increase of benefits alone would increase the cost of the in- surance, and if the rates were not correspondingly increased it would follow that the rates previouslj^ in existence were excessive. It may be that some of the rates were not excessive, but if any of them were, and if excessive rates have existed under compulsion from the Commonwealth in the past, such a thing should not be permitted in the future. No one would question the soundness of the principle that the companies fur- nishing compensation insurance should be permitted to charge a rate wliich would enable them to carry the insurance without a loss and to maintain their solvency. In pursuance of the order of the General Court, the President of the Senate named as members of the committee from the Senate, Hon. James F. Cavanagh of Everett, Hon. George H. Jackson of Lynn, and Hon. John F. Sheehan of Holyoke; and the Speaker of the House of Representa,tives named as members of the committee from the House, Representative William W. Kennard of Somerville, Representative Essex S. Abbott of Haverhill, R.epresentative John G. Faxon of Fitchburg, Repre- sentative Robert T. Kent of Pittsfield, Representative William H. Sullivan of Boston, and Representative Charles F. Garrity of Worcester. The committee held its first meeting on June 19, 1916. Grover C. Hoyt of Boston was elected secretary. Headquarters were immediately established in Rooms 433 and 435, State House, where all persons interested in the subject of w^orkmen's compensation insurance rates and accident prevention might meet members of the committee or the secre- tarv. 6 COMPENSATION INSURANCE RATES. [Feb. In order to get the views of as many persons as possible on the various aspects of the problem which confronted it, the . committee decided to hold a number of public hearings. During a period of about five months many such hearings were held. It was the desire of the committee to get the viewpoints of employers of labor, employees, the insurance companies and the general public, and to this end various interests were requested to appear before it, to give expression to their ideas or to make suggestions. Boards of trade and business organizations to the number of 130 were so invited. Few of said organizations appeared or offered suggestions. Ninety-tw^o Central Labor Unions and Local Councils of Labor were notified. Th6re appeared, on behalf of labor, members of the legislative com- mittee of the American Federation of Labor, and representa- tives of the Textile Workers, Brockton Shoe Workers, State Council of Carpenters, Wage Earners Clubs and many Central Labor Unions. Individual employers appeared before the com- mittee, as well as representatives of the Associated Industries of Massachusetts. Your committee was advised that tw^enty-four stock and mutual insurance companies were transacting workmen's com- pensation insurance in Massachusetts, and these twenty-four companies were requested to come before the committee. Representatives of eight of these companies appeared before the committee and were heard. The Insurance Brokers Association of Massachusetts requested to be heard, and a special meeting was assigned at which it was represented by its secretary. During the course of the hearings the subjects of rating bureaus, State fund and self-insurance were emphasized as im- portant factors in the establishment of premium rates and in preventing accidents. The committee made a careful analysis of these matters for data available, but, deeming it advisable to get information at first hand, visited New York City, Columbus, Ohio, and Washington, D. C. In New York City a close study was made of the National Workmen's Compensation Service Bureau, and in Columbus, Ohio, of the Ohio State fund and the system of self-insurance. In Washington the committee sat in the Con- ference on Social Insurance, held under the auspices of the 1917.] SENATE — No. 370. 7 International Association of Industrial Accident Boards and Commissions, and heard from the lips of commissioners of many States, insurance company officials, large self-insurers and manufacturers the story of workmen's compensation and accident prevention. Your committee desires at this time to express its thanks to the following gentlemen for courtesies extended : — Prof. Albert W. Whitney, general manager of the National Workmen's Compensation Service Bureau, and his associates; Mr. Harwood E. Ryan of the New York State Insurance De- partment; Mr. Wallace D. Yaple, chairman of the Ohio In- dustrial Commission, and his associates; Insurance Commis- sioner Frank Taggart and Governor Frank B. Willis of Ohio; and Mr. Dudley M. Holman, president of the International Association of Industrial Accident Boards and Commissions. EARLY HISTORY. Massachusetts took its first step in dealing with industrial accidents in 1887, under the Massachusetts employers' liability law (St. 1887, ch. 27(3), which was the first employers' liability law enacted in the United States. This law remedied many of the defects in the operation of the common law, particularly with respect to the doctrine of fellow servant. But it was soon found that it not only failed to do equal justice to employees, but brought about a great increase in litigation, with all the attendant evils of economic waste. Not much public interest was evidenced on the subject, how- ever, until the passage of the first compensation act in England in 1897. Germany had previous!}' enacted a system of social insurance covering sickness and accident, as a result of an in- vestigation which was reported in 1882. Increasing agitation followed the passage of the English compensation act, and in 1903 a commission was appointed, with Carroll D. Wright as chairman, to investigate the relation of employer and employees. That commission made an investi- gation during the summer of 1903 and presented its report to the Legislature in 1904, with a draft of a compensation act modeled after that which had been adopted in England. (Report of committee on relations between employers and em- 8 COIMPEiXSATIOX INSURANCE RATES. [Feb. ployees, Jan. 13, 1904, paragraphs 47-55.) This act failed to pass the Legislature, but the report of the commission and the effort to pass the proposed act excited so much interest that a similar measure was introduced in the legislative sessions of 1905 and 1906, but each year it was defeated. In 1907 a joint special committee on labor, consisting of three members of the Senate and eight members of the House, was appointed to sit during the recess of the General Court to con- sider workmen's compensation among other questions. That committee held hearings during the summer of 1907 and made its report to the Legislature on Jan. 24, 1908. (House Docu- ment No. 1190 of 1908.) x4.mong the measures submitted to it was a compensation act identical with that recommended by the commission of 1903, which had been rejected by previous Legislatures. (House Document No. 402 of 1907.) The com- mittee, however, was unable to come to an agreement on the question. A majority was opposed to a general compulsory act and to any change in the employers' liability law. They favored a voluntary law which would permit employers to enter into contracts with their employees to substitute a plan of compen- sation for their legal liability under existing laws, and framed an act embodying its principles. A minority favored a com- pulsory compensation act and submitted a draft of such an act, but the Legislature enacted the voluntary law reported by the majority. (St. 1908, ch. 489.) In 1909 the act was amended so as to permit employees as well as employers to submit to the State Board of Conciliation and Arbitration plans for contractual compensation. (St. 1909, ch. 514, sects. 136-140.) Meanwhile the sentiment in favor of workmen's compensation was grov/ing, being supported by many employers of labor as well as by labor organizations, and in 1910 a resolve was passed creating a commission "to determine upon a plan of compensat- ing employees for injuries received in the course of their em- ployment" (Res. 1910, ch. 120). Under the terms of that resolve the commission reported May 20, 1911, submitting three bills (see House Document No. 1925 of 1911) which were described in the report as follows : — 1917.] SENATE — No. 370. 9 The act submitted by Messrs. Saunders and Parks provides for volun- tary mutual insurance of employees by employers, and repeals certain existing defences. The act submitted by Mr. Lowell provides for compulsory compen- sation paid to employees by employers. The act submitted by Mr. Alexander provides for universal compulsory mutual insurance of employees, supported by contributions by both employers and employees. The bills were referred to the joint committee on the judi- ciary; many hearings were held, and the committee reported the bill submitted by Messrs. Saunders and Parks. (House Document No. 2154 of 1911.) That bill provided for the creation of the Massachusetts Em- ployees Insurance Association. It required the Governor to appoint a board of directors consisting of fifteen members who were to proceed to form the company; all employers of labor accepting the compensation system would do so by procuring a policy of insurance in the company, and automatically, in event of injury, their employees would be entitled to compensation in accordance with the provisions of the act. The first board of directors was allowed to spend $15,000 of the State's money for the purpose of organizing, but the association was to be self- supporting. The bill passed the House of Representatives without change. In the Senate, however, as a result of the persistent efforts of the stock insurance companies, and against the protest of labor organizations, it was amended so as to give all liability insurance companies the right to carry workmen's compensation insur- ance, thus making such companies active competitors of the mutual company created by the act. (St. 1911, ch. 751, Part v., sect. 3.) The following year this act was amended by the insertion of a provision requiring any liability insurance company desiring to carry workmen's compensation insurance to file with the Insurance Commissioner its classifications of risks and premiums relating thereto and any subsequent proposed classifications or premiums, and suspending the operation thereof until approved by the Insurance Commissioner as adequate for the risks to 10 COMPENSATION INSURANCE RATES. [Feb. which they respectively applied. (St. 1912, ch. 571, sect. 17.) Chapter 666 of the acts of the same year authorized the Insur- ance Commissioner to withdraw his approval of any premium or distribution to subscribers of the Massachusetts EmploA'ees In- surance Association, or of any premium or rate made by an insurance company and approved by him under the statute above quoted. The Massachusetts Employees Insurance Association having complied with the law, the Insurance Commissioner on June 27, 1912, issued to that company a license to write policies. Two mutual and twenty-four stock companies were also authorized to write workmen's compensation insurance in Massachusetts. The classifications of risks and rates and the rules pertaining thereto were filed with the Insurance Commissioner prior to July 1, 1912, and in accordance with section 3 of chapter 751 of the Acts of 1911, as amended by section 17 of chapter 571 of the Acts of 1912, were approved by him as adequate. The Insurance Commissioner, in a statement before the joint committee on the judiciary, INIay 1, 1916, which statement is quoted in Part II. of the sixty-first annual report of the Insur- ance Commissioner, said : — The original rates were pitched too high. Reductions were allowed from time to time, and no serious complaint was heard from any company imtil the fourth substantial reduction came in February of 1914. This reduction was approved by the Insurance Commissioner for rates filed by the Employers LiabiUty Assurance Corporation, Ltd., acting for the stock companies. The experience figures submitted by the company appeared to indicate that the reduction was justified, when the benefits then in effect were taken into consideration. The approval of this reduction brought a protest from the ]Massachu- setts Emplo3'ees Insurance Association, which questioned the accuracy and conclusiveness of the experience filed, and held that the resulting rates were too low for many of the classifications involved, and that the rates in question were the result of the combination of the stock companies for the purpose of suppressing competition. This reduction and their contentions with respect to it were brought to the attention of the then Governor, who had just recommended to the Legislature certain increases in the benefits pro\aded by the workmen's compensation act. He called into conference representatives of the insurance companies, re\'iewed the situation with them, and, after an imderstanding was reached with the leading companies to the effect that they were willing to undertake to 1917.] SENATE — Xo. 370. 11 carry the insurance at the new rates, the matter was dropped until the bill providing for the increased benefits had been passed by the Legisla- ture. The Governor then sent in a special message, calling attention to the rate situation and the charges that the rates discrimmnted imfairty against certain classes of employers and were the result of an improper combination of insurance companies, and recommended legislation to make insurance a commodity that would faU within the provisions of the act prohibiting monopolies in restraint of trade. The Legislature instead created a commission to investigate practices and rates in insurance. Li the meantime the new benefits went into effect, but the reduced rates remained the same until the recent change, ]\Iay 1, 1916. The Commission to Investigate Practices and Rates in In- surance, created under chapter 160 of the Resolves of 1914, of which Insm-ance Commissioner Frank H. Hardison and the then State actuary, William J. ^Montgomery, were members, re- ported upon the question of rate reduction in the following language : - — The first reduction in the rates of the stock compames took place on Aug. 30, 1912, when the rate for laimdries was reduced. Important re- ductions have been made four times, namely, Oct. 1, 1912, in about 175 classifications; Feb. 15, 1913, in all classifications; July 1, 1913, in about 225 classifications; Feb. 2, 1914, in about SOO classifications. There would seem to be little doubt but that the reduction of Oct. 1, 1912, was brought about largely by reason of competition. This reduc- tion resulted approximately as follows: Of the rates reduced, 14 per cent, were reduced less than 10 per cent.; 32 per cent, were reduced over 10 to 15 per cent. ; 33 per cent, were reduced over 15 to 20 per cent. ; 21 per cent, were reduced over 20 per cent. The second important reduction took effect on Feb. 15, 1913, when a flat reduction of 25 per cent, was filed and approved for the stock com- panies. Sufficient experience had been developed up to that time to indi- cate that rates in general were too high and could safely be reduced. Experience in individual classifications, however, was not available, and for that reason no attempt was made to make a scientific reduction, classi- fication by classification, but a flat reduction was made in all rates. Between Feb. 15, 1913, and June 30, 1913, other reductions were made. The principal changes were in the metal and wood schedules, which were revised as to both classifications and rates, and on July 1, 1913, reductions which applied principally to the chemical, leather, limiber, printing and textile industries were made. Some time previous to Feb. 1, 1914, evidence was submitted to the insurance department that the rates on many schedvdes were too high, and 12 COMPENSATION INSURANCE RATES. [Feb. besides that evidence was the fact that the American Mutual Liability- Insurance Company was paying a 30 per cent, dividend, and the Massa- chusetts Employees Insurance Association was pajdng to its general subscribers dividends of from 20 to 30 per cent, on substantially the same rates as charged by the stock companies. (Pages 27, 28, Report on Work- men's Compensation Insurance, 1915.) The commission, under the heading, "Reasonableness of Rates," made this report: — The premium rates for v\^orkmen's compensation msurance in Massa- chusetts have been obviously unreasonable. The mutual companies, out of premiums which until about a year ago were substantially the same as charged by the stock companies, had been paying dividends in some in- stances of 30 per cent, to their subscribers.. It cannot be assumed that the mutuals were doing business at a loss. The logical conclusion, there- fore, is that compensation insurance companies, stock as well as mutual, have received a considerable percentage more than they needed to pay the benefits and carry on their business economically. Of course the increased benefits provided by recent legislation change this situation. In super\asing the rates of those companies in Massachusetts which do business also outside of Massachusetts, careful consideration should be given to the rates they are charging, and their expense of doing business in other States; for while the lowest possible rates consistent T\ith the solvency of the companies should be obtained for Massachusetts, the depressing of rates in Massachusetts without similar reductions in other territories would provide the desired opportunity to eliminate local competition. The commission recommended a readjustment of rates and the establishment of a rate-making bureau. Its report was for- warded to the General Court by His Excellency David I. Walsh, with a message (Senate Document No. 543 of 1915) in which His Excellency said the commission "has succeeded in establishing beyond a reasonable doubt the following facts, namely: — That there is no competition in the making of rates for insurance against the liability of employers on account of industrial accidents, but that the rates are in fact, by agreement between the companies, fixed by a smgle expert in their employ. That these rates are in many cases too high, owmg chiefly to the allow- ance of excessive and ungraded commissions for securing new business. That a great advantage in regard to the prevention of accidents is to 1917.] - SENATE — No. 370. 13 be expected from the provision of schedule rates, with proper reductions in favor of establislinients where safety devices are installed and where due precautions against accident are taken. The legislation proposed by the commission failed of passage in the General Court, and the Insurance Commissioner subse- quently recommended to the companies the formation of a rate- making bureau. As a result of his recommendation, in July, 1915, the Massachusetts Rating and Inspection Bureau was organized by all insurance companies transacting workmen's compensation insurance in Massachusetts. The Bureau pre- pared a new schedule of rates which was approved March 24, 1916, to go into effect April 1, 1916. Immediately upon the approval of these rates many em- ployers complained to His Excellency Samuel W. McCall that their premiums had been increased. At the request of the Governor, the Insurance Commissioner postponed the taking effect of the new rates until May 1, and thereupon His Excel- lency sent to the Legislature the message quoted on page 3 of this report. It was referred to the joint committee on the judiciary; extensive hearings were given and several bills were presented for consideration. Eventually the committee re- ported a bill which passed the House of Representatives, but failed of passage in the Senate. Thereupon His Excellency sent to the Legislature a second message asking for the appointment of a recess committee to study the question, and in compliance with his request this committee was appointed. Part I . METHODS OF INSURING PAYMENT OF WORKMEN'S CO:^IPENSATION. Workmen's compensation is in operation in thirty-two States of the LTnion; four methods have been developed for insuring payment of benefits to the injured workm.en, or to his de- pendents in case of his death : — 1. Insurance in a stock insurance company. 2. Insurance in a mutual insurance company. 3. Contribution to a State fund. 4. Self-insurance. 14 COMPENSATION INSURANCE RATES. [Feb. Under the Massachusetts workmen's compensation act only the first two methods are recognized. An employer of labor who desires that his employees shall receive the benefits of the workmen's compensation act takes out a policy of insurance in any liability insurance company authorized to do business in this Commonwealth (see Acts 1911, ch. 751, Pt. V., sect. 3, as amended by Acts 1912, ch. 571, sect. 17), and at present he may elect whether such policy shall be issued by a mutual or a stock company. Insurance in a Stock Insurance Company. In Massachusetts a stock company is permitted to do business if it has a capital of $200,000 and has complied with certain re- quirements of law. Stock insurance companies are privately owned, having a capital divided into shares of stock which are sold to the public or held by the financial men who organized the company. These companies are managed by salaried ofiicers and are run for profit. They charge a fixed rate of premium, agreed on in advance of the issuing of the policy, which premium is a certain percentage of the pay roll of the employer, or, in other words, is a certain percentage of the wages paid by the insured employer to his employees. Accord- ing to the report of the Insurance Commissioner of Massachu- setts under date of Jan. 1, 1916 (Public Document No. 9, Part II., page xxiv.), twenty-five stock companies carried workmen's compensation insurance risks in Massachusetts during a part of the year 1915. Five of these companies ceased doing work- men's compensation insurance during 1915 and two more during 1916. The cost to the stock companies of handling their Massachu- setts workmen's compensation business, as reported by the In- surance Commissioner, averages 40.13 per cent, of the pre- miums collected. In the tables on the following pages are shown, for each company which has at any time carried work- men's compensation risks, its total receipts from premiums, together with its payments for losses and expenses, the data being furnished by the insurance department of the Common- wealth. 1917.] SENATE — No. 370. 15 Insurance in a Mutual Insurance Company. Under the laws of Massachusetts, ten or more persons resi- dent in this Commonwealth may form an insurance company on the mutual plan, to transact various forms of liability insur- ance which stock companies may be authorized to transact, and may issue policies when they have secured applications for in- surance, the premiums for which shall be not less than SoO,000; or in lieu of this, applications of not less than 100 employers having not less than 10,000 employees, or applications from not less than 50 employers having not less than 5,000 employees, each of such employers having become obligated by the by-laws of the company for an amount not less than five times his cash premium, or applications from not less than 50 employers hav- ing not less than 5,000 employees, accompanied by a bond of $100,000, or a fund of S50,000 deposited with a trustee. INIutual insurance companies charge a fixed rate of premium agreed upon in advance, as do stock companies, but are not run for profit. Whatever profit is made is returned to policy holders in the form of dividends. According to the report of the Insurance Commissioner of Massachusetts, dated Jan. 1, 1916 (Public Document No. 9, Part II., page xxiv), four mutual companies were doing work- men's compensation insurance business in Massachusetts in 1915. The average expense of the mutual companies is reported by the Insurance Commissioner to be 16.41 per cent., or 23.72 per cent, less than the reported average expense of the stock com- panies. ^ The expense of the Massachusetts Employees Insur- ance Association, which is a company created under the work- men's compensation act (St. 1911, ch. 751, Part IV.), is reported for the year 1915 to be 14.85 per cent., or 25.28 per cent, less than the average expense of the stock companies. Contribution to a State Fund. The advocates of a State fund assert that the State in estab- lishing a system of compulsory compensation, or a system which by its terms impliedly compels compensation, should, as a matter of fairness and equity, establish a State fund for the 14 COMPEXSATIOX IXSURAXCE RATES. [Feb. Under the Massachusetts workmen's compensation act only the first two methods are recognized. An employer of labor who desires that his employees shall receive the benefits of the workmen's compensation act takes out a policy of insurance in any liability- iasurance company authorized to do business in this Commonwealth 'see Acts 1911, ch. 751. Ft. V., sect. 3, as amended by Acts 1912, ch. 571, sect. 17), and at present he may elect whether such policy shall be issued by a mutual or a stock company. IxsrEAXCE EST A StOCK IxsrHAXCE CoiEPAXY. In Massachusetts a stock company is permitted to do business if it has a capital of $200,000 and has complied with certain re- quirements of law. Stock insurance companies are privately owned, having a capital divided into shares of stock which are sold to the public or held by the financial men who organized the company. These companies are managed by salaried officers and are nm for profit. They charge a fixed rate of premium, agreed on in advance of the issuing of the policy, -wiiich premium is a cert:ain percentage of the pay roll of the employer, or, in other words, is a certain percentage of the wages paid by the insured employer to his employees. Accord- ing to the report of the Insurance Commissioner of IMassachu- setts under date of Jan. 1, 1916 (Public Document No. 9, Part IL, page xdv.), twenty-five stock companies c-arried workmen's compensation insurance risks in Massachusetts during a part of the year 1915. Five of these companies ceased doing work- men's compoisation insurance during 1915 and two more during 1916. The cost to the stock c-ompanies of handling their Massachu- setts workmen's compensation business, as reported by the In- surance Commissioner, averages 40.13 per cent, of the pre- mitmis collected. In the tables on the following pages are shown, for each company which has at any time carried work- men's compensation risks, its total receipts from premiums, together with its payments for losses and expenses, the data being famished by the insurance department of the Comman- weahh. 1917.1 SENATE — No. 370L 15 LvsuBAXCE IN A Mutual Ln'sitraxce: Coiipaxy. Under tte laws of Massacliusetts^ tea or moire persons resi- dent in this Conunonwealtli may form an insurance companr on tte mutual plan, to transact various forms of Eabilfty insur- ance which stock companies may be authorized to transact^ and may issue policies when th.ey have secured applications for in- surance, the premiums for which, shall be not less than §50,000; or in lieu of this, applications of not less than 100 employers having not less than 10,000 employees, or apphcations from not less than 50 employers having not less than 5,000 employees, each of such employers having become obligated by the by4aws of the company for an amount not less than five times his cash premium, or applications from not less than 50 employers hav- ing not less than 5,000 employees, accompanied by a bond of ^100,000, or a fund of §50.000 deposited with a trustee- Mutual insurance companies charge a fised rate of premium agreed upon in advance, as do stock companies, but are not run for profit. Whatever profit is made is returned to policy holders in the form of dividends. According to the report of the Insurance Commissioner of Massachusetts, dated Jan. 1, 1916 (Public Docimient Nck. 9„ Part II., page xxiv), four mutual companies were doing work- men's compensation insurance business in Massachusetts in 1915. The average expense of the mutual companies is reported hy the Insurance Commissioner to be 16-41 per cent., or 23-72 per cent, less than the reported average e^^ense ol the stock com- panies. The expense of the Massachusetts Employees Insur- ance Association, which is a compan\- created under the work- men's compensation act (St. 1911, ch. 751, Part IV-), is reported for the year 1915 to be 14-85 per cent-, or 25-28 per- cent, less than the average expense of the stock comipanies- CONTKIBUTION TO A SXATE FrND. The advocates of a State fimd assert that the State in estab- lishing a system of compulsory compensation, oir a system which by its terms impliedly compels compensation, shouM, as a matter of fairness and equity, establish a State fund for the 18 COI\IPEx\SATIOx\ INSURANCE RATES. [Feb. of premium charged by stock companies operating in Ohio, and asserts that the liability insurance company rates are 132 per cent, higher than the rates in the Ohio State fund. In the same report he states that the Ohio jNIanufacturers Association and the Ohio State Federation of Labor at their respective annual meetings endorsed the Ohio State fund, and further, he says: — While the Ohio State insurance plan is so greatly conserving the in- terests of the Ohio employers, is it properly conserving the interests of the Ohio emplo3^ees? I have heretofore referred to the scale of benefits of the Ohio plan as compared with the scale of benefits of the surrounding States. The Industrial Commission has before it to-day less than 9,000 pending claims. In the month of May alone there were reported to the commis- sion 10,506 claims. This certainly demonstrates that the claims of the injured Ohio employees and their dependents are being handled with the greatest promptness. Moreover, the Ohio State insurance plan does not attempt to commer- cialize this third party, who bears in a vast number of instances a totally impersonal relationship as applied either to the employer, or, when com- mercialized, the insurance carrier. This is precisel.y the reason that work- men's compensation insurance is fundamentally different from other kinds of insurance; is precisely the reason that the Ohio State insurance plan is making no trespass or invasion into the legitimate fields of private enterprise, but, on the contrary, is simply performing an obligatory, and therefore a mandatory, function of State government. No one thing was contributed to the development and spread of social- ism in the United States as much as the commercializing of injured em- ploj'-ees and their dependents in the hands of the liability insurance companies; conversely, no one thing has more greatly retarded the devel- opment and spread of socialism in Ohio as much as the Ohio State in- surance plan, for the very clear reason that it has removed Ohio's injured employees and their dependents, most frequently unfamiliar with their rights, from the hands of claim agents representing private concerns organized solely for profit. The interests of the general public are to a great extent automatically taken care of Avhen the interests of the employers and employees are conserved. It is consequential from the viewpoint of the general public, however, whether or not the Industrial Commission economically ad- ministers the Ohio State insiu-ance plan, for the reason that the cost of the same is paid from the general fund of the State. The degree to which the commission is economically administering the Ohio plan is demonstrated by the fact that the commission has operated 1917.] SENATE — Xo. 370. 19 the same at an expense ratio equivalent to only 1 1 per cent, of the earned premium, as compared with the expense ratio of the liability insurance companies of 45 per cent. Self-insurance. Self-insurance, as the term implies, means that employers earn,' their own insurance; that is, that they pay to injured em- ployees and to dependents of killed employees the compensation benefits as provided in the compensation act, and pay these out of a fund which they themselves maintain. As the State of Ohio has the best developed system of State fund, so it also has as an alternative the best developed system of self-insurance. Prior to the passage of the workmen's com- pensation act in Ohio, several very large and financially strong corporations, employing large numbers of workmen, had insti- tuted systems of voluntary relief or compensation which were carried by them as a straight charge against their business, without any insurance. They had adopted this practice because it offered an opportunity to deal directly with injured employees on questions of settlement, without the necessity of negotiating through the paid adjuster of an insurance company. They maintained their own medical and surgical equipment, hospital with nurses and other comforts, and when the compensation act was made compulsory it was considered advisable to allow these large manufacturers to continue as they had done, under certain restrictions. The Industrial Commission of Ohio has authority in its dis- cretion to grant to an employer, upon application, the right to conduct self-insurance. The applicant must first satisfy the commission of his financial responsibility, — not in the ordinary banking sense, but in the sense of his ability to weather any accident or catastrophe; of his ability to provide proper medical attention; of his ability to administer the compensation act in the broad spirit of its conception. The commission when satisfied grants the request of the applicant and allows him to conduct self-insurance. All acts of the employer are subject to confirmation by the commission. Payments to injured em- ployees and their dependents, payments for medical and hospital service, and for funeral expenses, must be the equal of 20 co^r^EXSATIox ixsuraxce ilvtes. [FoI). those provided in the act, and the Industrial Conunission is empowered to adopt such ruk^s and rejiulations as nia>' hv necessiiry to secure proinjit and adequate payments. The Massachusktts Syste^i. In Massachusetts the Insurance (^onnnissioner is empowered luider tlie com])ensation act to a})])rove tlie premium as ade- quate for the risk assumed, wliich virtually means that the In- surance Commissioner establishes a mininumi premium. All the various compajiies transacting workmen's compensa- tion insurance in Massachusetts are represented in a voluntary organization, known as the IMassachusetts Hating and Insi)ec- tion Bureau, which classifies the various industries, collects and collates information with reference to such classifications and the loss ratio, ajid ascertains the amount of moncA- necessary to pay the losses. Scope of Bureau. While rate-making bureaus ha\'e been established elsewhere, in some cases under statutory authority, and in others by the purely voluntary association of the com])anies themselves, in Massachusetts none existed prior to July, 1915. During the year 1914 the special commission referred to elsewhere in this report had reached certain conclusions, one of which was tliat it was advisable that a bureau system should be established in Massachusetts, and it recommended legislation to that end. This legislation in the form of concrete bills was presented to the General Court in the session of 1915, and if enacted would have established a compulsory compensation insurance rate- making bureau in this State, existing under legislative author- ity. They were presented late in the session, however, and failed of passage. Shortly after the adjournment of the Legislature, iji July, the companies themselves, in consultation with and to a very con- siderable extent following the advice of the Insurance Commis- sioner, voluntarily established a Bureau along practically the lines contemplated by the proposed legislation aboA'c referred to. This Bureau began actual operation in September of 1915. The primary purpose of the Bureau, as stated before this com- 1917.] SENATE — Xo. 370. 21 mittee and as indicated by its name, — the Massachusetts Rating and Inspection Bureau, — was to put into operation a rating schedule in accordance with the degree of excellence in each plant. In preparing its constitution, this purpose was ex- tended to include the getting of all available statistics to de- velop the manual rates; the making of uniform rules and regu- lations; and giving the fullest information to employers with respect to the construction of rates. All the companies doing business in the State, including stock and mutuals, became members of this Bureau. Under the con- stitution adopted, the stock companies as such, although much more numerous, were given the same voting power as the mu- tual companies, and in the event of a deadlock on any question the Insurance Commissioner was empowered to cast the deciding vote. Development of the Present Rates. Not long after its formation, the Massachusetts Bureau par- ticipated in a conference in New York with the Workmen's Com- pensation Ser\-ice Bureau, a voluntary association of stock companies doing business in various States, and the Compensa- tion Rating Board of New York, a statutory bureau of all companies doing business in that State. The insurance depart- ments of New York, Pennsylvania, Wisconsin and Massachu- setts also participated in the conference. It reviewed each manual classification and rate, as well as the differentials for each State. Its purpose was to align upon a mathematical basis the diflferences existing in the several States. On the whole, the results were satisfactory to all concerned with the exception of a single company. All agreed that the manual classifications and the general rules governing division of the pay roll were satisfactory. The basic pure premiums were mainly satisfactory, but certain changes were made for Massa- chusetts on recommendation of the Insurance Commissioner. Up to this point there was no objection to adopting for Massachusetts the results of that conference. On the question of the multipUer, however, dissension arose. The Employers Liability Assurance Corporation, Ltd., was unwilling to abide bv the result which had been reached by the New York Confer- 22 COMPENSATION INSURANCE RATES. [Feb. ence, and being unable to impress its views on the other mem- bers of the Massachusetts Bureau, it eventually withdrew there- from and filed its own rates with the Insurance Commissioner. These rates were generally lower than those compiled by the Bureau and approved by the Insurance Commissioner. Inci- dentally, the adequacy of these rates has never been specifically passed upon by the commissioner. The position of the Employers Liability Assurance Corpora- tion, Ltd., as stated by its representative before this committee, was that the law differential, that is, the amount which should be added to the pure premium by reason of added benefits over those in the original act, had been applied horizontally to all classes of risks, and also that the loadings were higher than the company should be obliged to charge. This corporation writes about 60 per cent, of its business in the textile and boot and shoe industries. The percentage al- lowed for the law differential was 40. The principal changes in the law have been the increase of benefits from one-half to two- thirds of average weekly wages and the increase in the maxi- mum term of payments from three hundred to five hundred weeks. In the textile industry, the representative of this cor- poration pointed out, the average weekly wage is something less than $9 per employee. Under the old benefits the maximum payment would amount to about $4.50; under the new benefits the maximum is increased to about $6, an addition of 33| per cent. In the boot and shoe industry, on the other hand, the weekly pay per employee was of such an amount that under either law many of the employees received the maximum of $10 per week, and in the industry as a whole the added cost due to increased benefits would not amount to 40 per cent. It was con- tended that these two industries, as well as many others where the pay is high, should not bear the burden of an arbitrarily applied law differential, to the unfair advantage and benefit of less extensive industries. Its objection to the loading factor in the multiplier was based upon the contention and assertion that the company could handle the business more efficiently and economically than was contemplated in that factor, and that it should have the privi- lege of doing so. 1917.] SENATE — No. 370. 23 The difference of opinion in the matter of loading was also a very serious and fundamental controversy, joined in by all the stock companies on the one hand, and by the mutual com- panies on the other, because of inherent differences in their methods of doing business. The mutual companies, by reason of their ability to return to their policy holders increased dividends, viewed additions to the loading from an angle differing entirely from that of the stock companies which pay no dividends to their policy holders. As a result of this controversy, matters reached a focus, which eventually brought about the appointment of this com- mittee. Since the committee was appointed, the constitution of the Bureau has been changed so that these two issues are no longer passed upon by the Bureau; and its functions are now confined to gathering data and information to guide its members in establishing manual classifications and determining for each classification the actual loss cost. Since this change in the constitution most of the controversy in the Bureau has been eliminated, and at the present time it is working in a fairly satisfactory manner. The Bureau has undertaken the work of merit rating, this rating being made in the first instance by the underwriting company in accordance with schedules and plans approved by the Insurance Commissioner, the Bureau having a supervisory right to check up the rating in any particular instance. The New York conference revised the classification of in- dustries and established a list of basic-pure premiums, taking the Massachusetts experience as the basis, but combining with it some additional experience developed in Illinois, Michigan and New Jersey, after so modifying the latter as to allow for the differences in benefits under the several compensation acts, and made the entire experience show the cost of providing the benefits under the original Massachusetts act. Thus the basic- pure premium is the loss cost per $100 of pay roll on the scale of benefits provided in the original Massachusetts act. To this basic-pure premium was applied, for the purpose of determining the gross rate for each State, a factor known technically as a multiplier. 24 CO:\IPEXSATIOX INSURANCE RATES. [Feb. The Multiplier. A brief explanation of the method by which the rate is made should perhaps be inserted at this point. As has been stated, Massachusetts statistics and experience, while not taken in toto, were the foundation, and as that experience was based at the time of the New York conference upon the original Massa- chusetts law, so the Massachusetts law as to benefits was taken as the starting point. Since the starting point was the actual loss cost under the original Massachusetts act, the first step was to find the probable loss cost under the act in effect in the particular State under consideration. Other items referred to below also entered into the rate to be finally charged, known as the manual rate, and among these, of course, an amount for ex- penses. These various items were expressed in terms of per- centage, called factors, and the final rate was arrived at by multiplying the basic-pure premium above referred to by these various factors expressed in one figure, which, as noted above, is known and referred to as the multiplier. This multiplier varies, as a matter of course, in each State. Here in Massachusetts no exact value has ever been agreed upon for each of these various factors. There has been, how- ever, a final multiplier established by the Insurance Commis- sioner as adequate, i.e., 2.35. Since Jan. 1, 1917, when the waiting period %vas reduced from fourteen to ten days, this multiplier has been 2.45. While the following statement of the construction of the multiplier is not exact, it is as near a consensus of opinion as the committee has been able to discover. There was much difference as to certain of the percentages and considerable range in the different results, 2.35 being arrived at finally by the Insurance Commissioner, without an exact figuring of any of the several factors, but as being as nearly correct as possible. The first factor in the multiplier, known as the law differential, has been generally admitted to be 40 per cent. The next is the factor for increasing cost of business and underestimation of losses. This has varied from 5 to 10 per cent,, and has been taken as 6 per cent. This factor does not mean increasing ad- 1917.] SENATE — No. 370. 25 ministration cost, but an increase really in pure loss cost because of the fact that employees, since the compilation of original figures, have learned more about the act and avail themselves of it to a greater extent. Another factor in the nature of a loss cost factor, figured at about 2 per cent., is the loss due to occupational diseases, for which no payment was originally allowed the employee. These various factors give us a multiplier of 1.5137, but there is still to be considered the expense of conducting the business. This is generally under- stood to have been figured at 37^ per cent, (which was the amount agreed upon in the New York conference). In short, the above result, 1.5137, is 62| per cent, of the premium to be charged, which would be 2.42. As the company may be expected to earn interest on the unexpended balance of its paid-in premiums, a factor of 2 per cent, was allowed for this, which on our figuring would bring the multiplier to 2.37. As stated above, it was fixed at 2.35. There is also a horizontal addition of 1 cent on all premiums to take care of the catas- trophe hazard. Pkobable Futuee Rates. It is already apparent that a continuation of the present system of paying workmen's compensation benefits, namely, through insurance in stock and mutual companies, will mean further increases in, the premium rates; in fact, the National Workmen's Compensation Service Bureau and the Insurance Department of the State of New York have announced that rates must be increased, and the participants in the New York conference of 1915 are now engaged in a revision of the basic rates and multipliers. The committee has not been able to ascertain what the recommendations of this conference will be, as its work is still far from completed. It is therefore necessary to attempt to forecast, from figures furnished by the Insurance Commissioner, what its conclusions are likely to be. From such figures we find that the earned premiums of the stock companies for the year 1915 were S2,819,041.28, and that the expenditures in- curred exceed such earned premiums (taking all stock com- panies together) by S689,233.80, a net loss of 24.4 per cent. 26 COMPENSATION INSURANCE RATES. [Feb. The Insurance Commissioner has stated (see Public Document No. 9, 1916, Part II., page xviii) that the rate increase which became effective May 1, 1916, approximated on the average 15 per cent., leaving on the basis of the above figures a de- ficiency of 9.4 per cent, in the rates. The increase of Jan. 1, 1917, does hot and was not intended to take up this deficiency, but merely to cover a conservative estimate of the additional cost created by the change in waiting period which became effective on that date. The increase in accidents reported, as shown by the figures of the Industrial Accident Board, clearly indicates an increase in loss cost due to the present unusual industrial activity, and while these figures undoubtedly relate to a larger number of employees, nevertheless various data relative to the increase in number and wages of employees indicate that the loss cost per employee, or per -1100 of pay roll, has undoubtedly risen. It would therefore seem that new rates when promulgated must not only take up the deficiency just referred to, but must also provide for this increase. From various estimates that have come to the attention of the committee it would seem that an allowance of from 5 to 10 per cent, for this would be very con- servative, and it therefore seems certain that, unless the com- panies are to incur a further loss in the future, the rates de- termined upon by the conference must be from 15 to 20 per cent, higher than the rates now in effect. The committee understands that the present rates of the Massachusetts Employees Insurance Association are 10 per cent, higher than the stock company rates, and that it has paid dividends of 30 per cent. Certain of its subscribers, who re- ceived 20 per cent, dividends before the readjustment of May 1, have since, we understand, been placed upon the 30 per cent, dividend basis. These dividends have been approved by the Insurance Commissioner in accordance with the provisions of the compensation act, after examination of figures submitted to him by the association.. The committee feels sure, therefore, that they have been earned, and that during the year 1916 the association's net cost has been approximately 77 per cent, of the gross rates now in eftect for stock companies. Most of this saving has been due to lower administration costs, but un- 1917.] SENATE — No. 370. 27 doubtedly the accident prevention work of the association has affected the character of its business. At this point it might be proper to point out that upon the total figures to Dec. 31, 1915, as furnished by the Insurance Commissioner, the stock company expenditures for inspection and accident prevention were l.S per cent, of the earned pre- miums, as against 2.3 per cent, for the association; but it should be borne in mind in this connection that there are in- sured with the association many of the largest employers in the State, who, even before the beginning of the compensation act, had extensive safety organizations. The association was there- fore not called upon to incur much expense on behalf of these employers, and its accident prevention expenses may reasonably be compared with a volume of premiums much smaller than its total writings. Probably the expenditure is to be compared with 50 or GO per cent, of its total premium writings, which would show a proportionate expenditure on this account of from 4 to 5 per cent, of its premiums. If, as is hereinafter recommended, the association takes over the entire business of the State, it may be expected that its loss cost will temporarily increase, but with the present economies of admmistration, as compared with the stock company adminis- tration, and with the further economies which so large a volume of business would give it, the committee has every confidence that the association should be able to conduct the business with- out further increase in gross rates, and at a net cost consider- ably below the present stock company rates. The original workmen's compensation act for this State, as reported by the commission in 1911, did not permit insurance companies to write workmen's compensation insurance. It pro- vided for the establishment of the Massachusetts Employees In- surance Association, a State insurance organization upon the mutual plan, which was to write all workmen's compensation insurance. The expense ratio of that association, taken from the Insurance Commissioner's report, is 14.85 per cent., even under present conditions, as against the average of 40.13 per cent, for the stock companies, which would seem to indicate that insurance can be written at a cost less than that now re- quired by the stock companies. 28 CO.AIPEXSATIOX INSURANCE RATES. [Feb. Your committee believes that the solidity and perpetuity of the workmen's compensation act depends upon a proper solu- tion of the problem of workmen's compensation insurance rates. We have a permissive act in Massachusetts, — permissive to the extent that an employer may accept the compensation act by insuring in an insurance company, or be penalized by losing his defences at common law. Laboring men are enthusiastic for the development of the workmen's compensation act, feeling that it gives to them the protection they need, and takes them out of the turmoil of court action and legal procedure. Repeated increases in the rates for workmen's compensation insurance, tending toward extremely high if not prohibitive rates, may drive employers out from under the compensation act, and force them, on the ground of economy, to take their chances at common law with their defences removed, which in many cases will mean that the injured employee, or his depend- ents if he is killed, will be forced into court in order to obtain justice; it will bring about a return to the evils existing previ- ous to the passage of the act, and which the act eliminated. In a statement to this committee the chairman of the Indus- trial Accident Board said : — The cotton manufacturers in New Bedford and Fall River have figured that they can get out from under the workmen's compensation act; and even with the three defences taken away thej'' figure thej'' can insure them- selves at 42 cents under the employers' liabiUty act, as against the 65 cents which they will have to pay under these new rates. That is some- thing you will have to face in all industries. They take as a basis for the figure that 90 per cent, of then- accidents wdll show no liability at all, which is probably true. If the rates are to be so high as to drive anybody out from under the act it will be a serious proposition for the workers of Massa- chusetts, because we have no compulsory compensation law as we should have; then no one could go out, no matter what the rates might be. The committee deplores anything which would in any way injure the workmen's compensation act or bring about these results, and for that reason we feel that a decisive step should be taken now to minimize the cost of workmen's compensation insurance. The competition between insurance companies is keen. They have many agents and rival brokers canvassing for business, all 1917.] SENATE — No. 370. 29 of which costs money and means expense. They are continu- ally contesting the payment of benefits and employing legal talent before the Industrial Accident Board, in addition to many other expenses necessitated by active competition, the expense and burden of which is placed upon the employer first and eventually upon the employee. While the committee is strongly impressed with the advan- tages of the Ohio system, nevertheless we see great disadvan- tages in having the State engage in the insurance business. With a State fund, managed and controlled by employees of the State, appointments would not always be made for efficiency, but would sometimes be prompted by political expediency, and the best results could not possibly be obtained. It is our belief that the solution of the rate difficulty lies in changing the law so as to provide for a single insurance carrier, operated by business men insuring their workmen therein, and controlled by the Commonwealth to an extent sufiicient to safe- guard the interests of all concerned. Thus insurance will be carried at cost by the industries of the Commonwealth, and managed by the men most concerned. Cost to IMassachusetts Industry of the Present Experi- ment WITH THE Competitive System. Since your committee's recommendation is to do away with the competitive method of conducting the compensation busi- ness now in effect, and since, when the original compensation act was amended, one of the stated purposes of the amendment was to try out competitively the different systems, it seems that your committee should present in this connection a somewhat more detailed study than indicated above of the cost of the present plan and the savings to be effected by your committee's recommendations. Since by the removal of defences the compensation act has been made compulsory upon most employers, it is evident that the solicitation expense of the companies is, generally speaking, sheer economic waste, since its purpose in nearly all cases is merely to influence employers either to change to some new in- surance carrier, or to remain with the one with which they may happen to be insured. Figures furnished this committee by the 30 COMPENSATION INSURANCE RATES. [Feb. Insurance Commissioner show that the stock companies allowed agents and brokers as commissions on workmen's compensation business, during the several calendar years since the compensa- tion act came into effect, the following sums : — Amount. Year ending Dec. 31, 1912, $491,476 78 Year ending Dec. 31, 1913, 507,072 35 Year ending Dec. 31, 1914, 441,912 84 Year ending Dec. 31, 1915, 437,865 38 $1,878,327 35 In addition to this large sum the mutual companies were nec- essarily under some expense, both in procuring new business and retaining upon their books the risks already insured with them. This cost may be conservatively estimated at 1| per cent, of the premium, which would be $60,894.65. Adding this item to the stock company commission expense gives $1,939,222, or, in round figures, $2,000,000. Nor does this cover the entire solici- tation cost, for in the case of the stock companies these figures include only actual commissions, to which must be added the cost of agency supervision in the home office and other costs incidental to the system of competitive selection of risks. The committee has not seen fit to add to these figures the $441,176.97, net profit to Dec. 31, 1915, shown by the Insurance Commissioner's figures, because, as noted earlier in this report, during the year 1915 the net loss to the stock companies was $689,233.80, and it therefore seems certain that during the year 1916 (since the new rates did not come into effect until May 1, and, as already shown, were not sufficient to enable them to break even) the companies' losses more than offset their net profit to Dec. 31, 1915. From the above figures of commissions it is evident that the continuance of the system during the year 1916 added approxi- mately another half million to the $2,000,000 cost above shown, and if a conservative estimate is made of the cost of agency supervision in the home office and the other expenses referred to, it will be found that the cost imposed upon Massachusetts industry for the maintenance of this system during these four and one-half years has been not much less than $3,000,000. 1917.] SENATE — No. 370. 31 Not content with these figures, the committee has endeavored to approach the question from a somewhat different point of view. From the Insurance Commissioner's figures it again ap- pears that the total earned premiums of the stock companies to Dec. 31, 1915, were $11,064,170.86, and their incurred expenses were $4,338,531.64, giving an expense ratio of 39.2 per cent. The total earned premiums of the mutual companies for the same period were $4,871,572.14, and the expenses incurred were $806,689.36, a ratio to earned premiums of 16.6 per cent. The saving of the mutual companies as compared with the stock companies was therefore approximately 23 per cent. Twenty- three per cent, of the $11,064,170.86 premiums earned by the stock companies would be $2,544,759.30, but we have already pointed out that the expense of the competitive system has im- posed upon the mutual companies a solicitation cost of some- thing more than 1 per cent, of their premiums, and it will be apparent that in the maintenance of separate statistical, claim and other administrative departments there is a large duplication of effort. Upon comparing the figures of the mutual companies with those of States where the business is done exclusively by a State fund, such as Ohio, it appears that concentration of the business in the hands of one insurance carrier will make it possible to reduce the expense of administration to about 11 or 12 per cent. There would therefore be a further saving of about 5 per cent, upon the total premiums of the stock and mutual companies. Such total premiums amounted to $15,935,743, and 5 per cent, of this sum is $796,787.15, wdiich, added to the $2,544,759.30 above, gives $3,341,546.45 as excessive cost of the competitive system imposed upon Massachusetts industry to Dec. 31, 1915, with a further increase for 1916, suice such fig- ures for that year have not been brought into this computation. Without attempting too great precision in the matter it is evident that the cost to Massachusetts industry for maintaining the present competitive system of compensation insurance has been between $2,500,000 and $3,500,000, or about enough to have met all the compensation payments called for by accidents during the year 1915. In the above figures no mention has been made of the amount 32 COMPENSATION INSURANCE RATES. [Feb. to be saved through the abolition of the Massachusetts Rating and Inspection Bureau, the annual cost of which is estimated by the Insurance Commissioner to be between $40,000 and $50,000. Since the adoption of the workmen's compensation act fully one-half of the time of the Insurance Commissioner has been consumed by compensation matters. In addition it has re- quired the entire time of two men in his department. With the adoption of the plan outlined by the committee much less of the time of the commissioner would be required for compensation matter. Looking at the matter as regards the future, and from the point of view of the committee's recommendations, it is perhaps well to summarize by pointing out that the present stock com- pany expense ratio is, on the average, about 40 per cent, of the earned premiums; that the present mutual company expense ratio is, on the average, about 16 to 17 per cent, of the earned premiums (although it is fair to say that at the present time the association and the American Mutual Company have suc- ceeded in reducing their expense ratios to about 15 per cent.) and that the expense ratio of a single company doing all the business, as is recommended by this committee, will be, on the average, about 12 per cent, of the earned premiums. Looking at the figures in another way, we may compare the expenses incurred with the losses paid, comparing in the case of the stock companies 40 cents of expenses with 60 cents of losses, and in the case of the proposed single company 12 cents of expenses with 88 cents of losses. From this it is evident that under the stock company system for every dollar paid to injured employees it requires 66f cents to carry that dollar through the system, from the employer to the employee, whereas under the system proposed by this committee it would cost less than 14 cents to carry that same dollar from the employer to the employee, and this 14 cents would not only cover the expenses of insurance administration, claim iuA'estigation and adjustment, but would provide for a substantial amount of accident prevention work. The committee therefore recommends — 1. That all stock and mutual companies be forbidden to transact workmen's compensation insurance, and that a State- controlled company be made the sole carrier of such insurance. 1917.] SENATE — No. 370. 33 2. That employers be permitted, under rigid restrictions, to carry their own insurance. 3. That workmen's compensation insurance be made com- pulsory for all employers of five or more persons, except em- ployers of domestic servants and farm laborers. The original workmen's compensation act provided, as previously stated, that the Massachusetts Employees Insurance Association should carrj^ all of the compensation insurance. The Governor of the Commonwealth appointed the first board of directors, and thereafter the policy holders elected their own directors. While it is now a private company controlled by its policy holders, it is popularly known as "The State Company," and, until forced by competition, confined its business ex- clusively to the writing of workmen's compensation in Massa- chusetts. It was given authority to transact other lines of business and to go outside of the Commonwealth by the Legis- lature, but your committee is advised that only $20,000 of premiums have been received by this association on business other than workmen's compensation. It has a great number of policy holders, an efficient corps of officials, an established surplus and good business organization. Your committee recommends that this be made in reality a State company, by the passage of legislation providing that a majority of the directorate shall at all times be directors appointed by the Governor of the Commonwealth. The association having been given, by previous Legislatures, all the powers conferred upon any insurance company, should be obliged, when taken over by the Commonwealth, to retire from all other forms of insurance and from all other States, and to confine its activities to the carrying of workmen's compensation insurance in Massachusetts alone. In addition to a law which will compel each employer to provide for the compensation of injured employees in accord- ance with the compensation act, an employer of large numbers of employees, if he is financially strong, should have the option of carrying his own insurance, and your committee recommends that a system of self-insurance be permitted, under rigid in- structions, viz. : — The Insurance Commissioner may grant a permit only when he is satisfied of the employer's financial responsibility, such 34 COMPENSATION INSURANCE RATES. [Feb. financial responsibility to be guaranteed by depositing with the Treasurer and Receiver-General securities in such amount as the Insurance Commissioner may require. The self-insurer should be required to pay to the Common- wealth each year a sum equal to 1 per cent, of the premiums which he would be obliged to pay if his risk were insured under the act, this payment being his contribution toward the expense of administering the act. The Industrial Accident Board should in all cases determine, subject to the provisions of the act, the amount to be paid to an injured employee or his dependents. Neglect or refusal on the part of a self-insurer to pay com- pensation as determined by the Industrial Accident Board should be reported forthwith to the Attorney-General, and it should be made his duty to bring suit and compel the payment, with costs assessed against the insurer, and the permit should be revoked by the Insurance Commissioner. While an employer may be financially strong and well able to meet the expense of any ordinary accident, we appreciate that in the event of catastrophe his securities deposited with the Treasurer and Receiver-General might be insufficient to meet the claims presented on behalf of injured emploj'ees, and your committee has accordingly inserted in its bill a provision that the self-insurer shall insure his catastrophe hazard in the State company under such conditions and at such premium rate as shall be approved by the Insurance Commissioner. A catas- trophe should be defined as any accident causing injuries to five or more" persons, and involving compensation payments of $20,000 or more. Workmen's Compensation Insurance should be made Compulsory. The committee is convinced that if the workmen's compensa- tion act were made compulsory, instead of elective, many evils arising under the present act would be eliminated, many hard- ships upon workmen would be removed, and there would no longer be the constant threat that some employers, dissatisfied because of repeated advances in rates, or for other causes, might 1917.] SENATE — No. 370. 35 further complicate the rate situation by refusing longer to insure their risks. From the decisions of the Massachusetts Supreme Judicial Court it is evident that any act making workmen's compensa- tion insurance compulsory would probably be declared un- constitutional. The committee therefore recommends an amendment of the Constitution which is submitted herewith, and recommends further that this amendment be agreed to by the present General Court, in order that if again agreed to by the General Court of 191S it may be submitted to the people in that year. Full power and authority are hereby given and granted to the general court to pro\ade for a method of compensating injured employees com- pulsory upon all employers. Part II. ACCIDENT PREVENTION. \Miile certain and prompt payment of compensation to injured workmen and their dependents has very properly been made the subject of thorough study, and has been secured by legislative enactment, the Commonwealth has not yet given adequate attention to the problem of preventing accidents. Statistics show that the number of accidents, and consequently the burden upon employees and society at large, is steadily in- creasing. It is our opinion that the Legislature should no longer delay the adoption of such changes in the present system and administration as are necessary to make them effective. There can be no dispute of the statement that every accident is simply so much economic waste, the amount of which is measured onlv bv the severitv of the accident. Moreover, the waste is threefold, in that the employee and his dependents must be cared for while he is incapacitated; his earning power is suspended for a time, and in the more severe cases is de- creased for all time. 36 COMPENSATION INSURANCE RATES. [Feb. What the Commonwealth has done. The Commonwealth up to the present time appears to have concerned itself chiefly with placing the burden of this waste. Originally it was upon the employee; then, through the em- ployers' liability act, he was given an opportunity to transfer a portion of it to his employer; and now, under the workmen's compensation law, it is distributed between the injured work- man and society at large, the workman bearing at least one- third of the burden. It should not be assumed, however, that the Legislature has been entirely unmindful of the necessity for preventing acci- dents. From time to time, prior to 1912, it had imposed upon the District Police and the State Board of Health the duty of inspecting such industrial establishments and conditions as fell naturally within their respective fields of action. By chapter 726 of the Acts of 1912 it created a State Board of Labor and Industries, and by section 5 of that act transferred to that Board "all powers and duties with reference to the enforce- ment of laws relating to labor and the employment thereof, the inspection and licensing of buildings or parts of buildings used for industrial purposes, the inspection and licensing of workers therein and of all other industrial employees within the com- monwealth, the enforcement of laws relating to the employ- ment of women and minors, and the institution of proceedings in prosecution of violation of any of the said laws." Thus the State Board of Labor and Industries was given full power to enforce such measures for preventing accidents as had been made the subject of legislative enactment. But in the following year, and before the State Board of La- bor and Industries had been appointed, the Legislature enacted chapter 813 of the Acts of 1913, entitled "An Act relative to industrial accidents and occupational diseases." The essential sections of that act are: — Section 1. The state board of labor and industries and the industrial accident board, sitting jointly, shall investigate from time to time em- ployments and places of employment within the commonwealth, and determine what suitable safety devices or other reasonable means or requirements for the prevention of accidents shall be adopted or followed 1917.] SENATE — No. 370. 37 in any or all such employments or places of employment; and shall also determine what suitable devices or other reasonable means or require- ments for the prevention of industrial or occupational diseases shall be adopted or followed in any or all such employments, or places of employ- ment; and shall make reasonable rules, regulations and orders for the prevention of accidents and the prevention of industrial or occupational diseases in such employment or places of employment. Such rules, regu- lations and orders may apply to both employer and employee. Section 4. The joint board shall make such general arrangement between the two boards as will prevent duplication of effort, but the inspection and investigation carried on by the state board of labor and industries shall be a systematic inspection and investigation of all places of employment and the conditions of safety and health pertaining thereto, and the inspection and investigation carried on by the industrial accident board shall be that relating to causes of injuries for which compensation is claimed. Section 13. Vv^hoever violates any reasonable rule, regulation, order or requirement made by the joint board under authority hereof shall be punished by a fine of not more than one hundred dollars for each offence. Under this statute the Joint Board had all necessary power to make rules and regulations for the prevention of accidents, the only limitation imposed being that its rules and regulations must be reasonable. Yet, after the Joint Board had possessed these broad powers for nearly three years, His Excellency the Governor sent to the Legislature the message of April 21, 1916, quoted above, and in which he said: — The operations of this Joint Board have not proved effective in any material degree. . . . The meeting of the Joint Board is held only once in a fortnight, and the statistics that have been collected relating to accidents and to occupational diseases have not even been digested and intelligent deductions drawn from them. *e^ His Excellency recommended that the powers of the Joint Board be transferred to the Industrial Accident Board, and this recommendation was embodied in a bill, but the Legislature enacted a statute transferring the powers to the State Board of Labor and Industries. By the Acts of 1911, chapter 751, Part III., section 18, it is provided that "Every employer shall hereafter keep a record of all injuries, fatal or otherwise, received by his employees in the course of their employment. Within forty-eight hours, not counting Sundays and legal holidays, after the occurrence of an 38 COMPENSATION INSURANCE RATES. [Feb. accident resulting in personal injury, a report thereof shall be "made in writing to the industrial accident board on blanks to be procured from the board for that purpose." Failure or neglect to jBle such reports is made punishable by a fine of not more than $50 for each offence. These reports constitute an essential feature of the adminis- tration of the compensation act; without them the Industrial Accident Board would be unable to secure for every incapaci- tated employee that certain and prompt compensation to which, under the provisions of the act, he is entitled. Apparently recognizing this fact, but believing also that the reports contained much matter which should be useful to the tribunal having charge of the State inspectors whose duties in- clude the safeguarding of machinery, etc., with a view to acci- dent prevention, the Legislature of the following year, in creating the State Board of Labor and Industries, provided that — Copies of all reports concerning injuries received by employees, which employers are required to file with the industrial accident board under the provisions of section eighteen of Part III. of chapter seven hundred and fifty-one of the acts of the year nineteen hundred and eleven, shall be filed with the state board of labor and industries. Any employer who refuses or neglects to make the report required by this section shall be punished by a fine of not more than fifty dollars for each offence. (St. 1912, ch. 726, sect. 13.) Even before the statute above quoted had become effective, however, the Legislature was petitioned to remove the require- ment of a dual report, on the ground that it imposed upon em- ployers unnecessary hardship and expense. As a result of this representation, the Legislature of 1913 repealed section 13 of chapter 726 of the Acts of 1912, and re-enacted the provisions of section 18 of Part III. of chapter 751 of the Acts of 1911, with certain additions, one of which was: — Copies of all reports of injuries filed by employers with the industrial accident board, and all statistics and data compiled therefrom, shall be kept available by the said board, and shall be furnished on request to the state board of labor and industries for its own use. (See St. 1913, ch. 746.) 1917.] SENATE — No. 370. 39 This statute became effective July 1, 1913, but apparently its existence was unknown to the State Board of Labor and Industries. A representative of that Board stated to this committee: — • There is a little bit of improvement that might be made, I think, if the Accident Board were required to report their accidents to us, and not have us stumble on them as we go along. The work of the Joint Board has been to investigate after the accident happened; the work of the State Board of Labor and Industries is to prevent the accident. It appeals to me, from the standpoint of a business man, that if we had a copy of every accident which Brother Donahue has we could then put an inspector upon that work instead of waiting for our force to stumble upon it. . . . A copy of each accident report will save the State a great many lives and a great many dollars. Since the above statement was made representatives of the Boards have been engaged in preparing a plan by which acci- dent reports will be available at all times to either Board, but at the time of writing this report no such plan has been put into effect. What the Insurance Companies have done. During the first six months (July 1 to Dec. 31, 1912) of the operation of the workmen's compensation act, when 23 com- panies were writing policies in this Commonwealth, 18 of these companies expended a total of S31,168.90 for inspection and accident prevention. In 1913, with 24 companies writing policies, 21 expended $96,950.25 for the same purposes. In 1914, 24 of the 29 com- panies writing policies expended the sum of $83,671.22; while in 1915 the expenditures for these purposes totaled $72,180.93, this being the sum of the payments made by 24 of the 29 com- panies writing policies. Figures for 1916 are not yet available. Thus it will be seen that during the first three and a half years of the operation of the act a grand total of $283,981.30 was expended by the private companies for inspection and acci- dent prevention. Of this sum, $196,663.95 was contributed by 20 stock companies, and $87,317.35 by 4 mutual companies. 40 COMPENSATION INSURANCE RATES. [Feb. What Employers have done. Statistics are nowhere available from which to form even an approximate idea as to expenditures by employers in their ef- forts to reduce accidents. It should be noted, however, that one of the larger stock companies reports to the Industrial Accident Board that it makes an average of 45,000 inspections each year, as a result of which its inspectors issue 100,000 orders; of these, 25 per cent, are deemed "essential," and 75 per cent, "desir- able." Of the former, 100 per cent, are complied with, while it has been found that fully 75 per cent, of the "desirable" orders are adopted. It is therefore apparent that employers generally have shown a most commendable desire to effect in their plants such changes as in the opinion of inspectors would assist in reducing accident frequency. In view of these facts — viz., that the Legislature has pro- vided abundant authority for the establishment of any regula- tions which may assist in accident prevention; that insurance companies have exj^ended nearly $300,000 of employers' premi- ums in their efforts to lessen the number of accidents; and that employers appear to have complied with practically all their suggestions — it is somewhat disconcerting to learn from the statistics of the Industrial Accident Board that the number of injuries sustained by employees in this State has increased in the four and a half years during which the compensation act has been in operation. For the year beginning July 1, 1912, and ending June 30, 1913, the number of accidents reported to the Board was 90,168; during the six months ending Dec. 31 last, no less than 84,603 accident reports were filed with the Board. It is our opinion that accident prevention would be promoted by the application of experience merit rating to every insured risk, as explained later in this report, and that the administra- tion of the compensation law, the making of rules and regula- tions for accident prevention and the enforcement of the same, together with the enforcement of all general laws relating to labor, should be co-ordinated within one industrial department, as is done with economy and marked efficiency in other States. As we have previously stated, the Industrial Accident Board 1917.] SENATE — No. 370. 41 receives a detailed report of every accident occurring in in- dustry in Massachusetts; its members are listening each day to recitals by injured workmen and others of the causes of serious accidents. They acquire intimate knowledge, in two ways, of the causes of accidents; and, of even more importance, the necessity of preventing accidents is impressed upon them through coming in personal contact with the victims of acci- dents who, in many cases, are maimed for life. These men, in our judgment, should make the rules and regu- lations for preventing accidents, and should be in close touch with the problems involved in their enforcement. The labor laws generally were conceived with the intention of improving places of employment and of preventing accidents and industrial diseases, but it is apparent that division of authority and lack of adequate supervision of inspection work are not conducive to this result. With a co-ordinated department, the educational work which at present is entirely lacking could be furnished, and the in- spection work should be greatly improved. Inspectors would be given far better instruction in effective methods of preventing accidents by men trained in the subject, through constant association with the causes of accidents and their victims, and they should be required to transmit the information given them to employers and employees in the places visited; establish- ments having an undue accident frequency would be called to their attention and made the subject of special study; and it would be possible (and highly desirable) to check the work of each inspector by ascertaining the accidents subsequently occurring in establishments which he has passed as conforming to the required standard. In Ohio the Industrial Commission administers the work- men's compensation law, collects the premiums and pays the benefits from the State fund. It has charge of the enforcement of all laws relating to labor, examines applicants for licenses to operate steam boilers, inspects steam boilers, as well as factories and buildings, superintends the free employment offices, and has the powers and duties formerly lodged in the Board of Concilia- tion and Arbitration. Our study of the Ohio system disclosed no dissatisfaction with its operations, employers and employees 42 COMPENSATION INSURANCE RATES. [Feb. generally expressing entire approval. In our judgment this system should be adopted in Massachusetts. The committee recommends the establishment of an industrial commission to include the present Industrial Accident Board, to which should be given all the powers and duties now exercised by it and by the State Board of Labor and Industries, and there should be transferred to it the supervision of free employ- ment offices, now entrusted to the director of the Bureau of Statistics; the powers and duties of the State Board of Con- ciliation and Arbitration; the powers and duties of the District Police with respect to the inspection of factories and buildings, and of steam boilers; and the powers and duties of the Mini- mum Wage Commission. The establishment of such a com- mission would result in a considerable saving to the Common- wealth in the matter of salaries alone. The salaries now paid to members of the several boards and commissions which it is proposed to consolidate, and to the deputies of the District Police in charge of the inspection of factories and public build- ings, and of steam boilers, aggregate $42,800. In Ohio the three members of the Industrial Commission receive salaries totaling $12,500. Your committee has not prepared drafts of bills for the consolidation of these commissions, believing that the de- tails of such consolidations should be worked out by the joint committee of the Senate and House which is now considering the consolidation of commissions. "Experience" v. "Schedule" Rating as a Means of preventing accidents. It is agreed by every one that the employer carrying on his business in a modern factory, well lighted, equipped with mod- ern machinery and all approved safeguards, and who, by reason of these factors and constant instruction of employees in the perils of carelessness, has a comparatively low accident cost, should have a premium rate lower than is required of another employer, whose experience has shown that his establishment is lacking in these features. The one should have a premium rate lower than the average rate; the other should pay a premium rate higher than the average rate. 1917.] SENATE — Xo. 370. 43 The premium rate for each of these employers should be adapted from the manual rate by methods scientifically and ac- curately devised. Two systems are in vogue. Under "schedule" rating the rate is determined in advance upon the basis of probable hazard due to the installation or lack of safety devices, safety organization, etc. Under "experience" rating the rate is based upon the actual accident frequency developed by the establishment. Under the schedule rating plan, which has been in operation in New York and certain other States for some time, an em- ployer who feels that he has safeguarded his machinery and in- stalled other safety devices to an extent which entitles him to a rate lower than the annual rate for his classification applies to the company in which he is insured for a rating of his risk. The company details an inspector to make a thorough examination of the employer's plant. On a blank provided for the purpose a speci- fied credit is given for each guarded danger point, whether it be on or about a machine, or an opening in the floor; in like man- ner a specified debit is charged for each machine, opening or other danger point which has not been brought up to standard. When the inspection is completed the blank is forwarded to the Inspection and Rating Bureau, which balances the debits and credits and applies the difference to the manual rate. The re- sult becomes the premium rate for the employer. Where the experience rating plan is in vogue, as in Ohio, the administrative authority, at the end of each six months, deter- mines for each establishment coming within the provisions of the workmen's compensation law its proper proportion of the accident cost of its classifications. If its actual accident cost has been more than its proper proportion, then a certain percentage of the excess is added to the premium for the ensuing six months; and a similar reduction in the premium is made if the actual cost has been less than the proper proportion. After careful study of both systems this committee is strongly of the opinion that the experience rating method is (1) far more accurate and gives a larger measure of justice as between em- ployers; and (2) will have a much greater tendency toward the prevention of accidents. 44 COMPENSATION INSURANCE RATES. [Feb. Accuracy. The schedule rating system is one under which the premium rate is determined in advance, the manual rate being graduated in accordance with the potentiality, rather than the actuality of accident. Credit is given, not for actual avoidance of acci- dent, but for installation of devices, etc., which may prevent ac- cident; and debits are charged, not for the accidents which actually occur, but for the presence of conditions which may result in accident. If the manual rate is scientifically and correctly computed, it is essential that credits and debits, applied to that manual rate, should exactly balance. Excess of either over the other must result in vitiating the manual rate. And that is exactly what has happened under the schedule rating system in New York. During the first year of its appli- cation in that State the credits given so outweighed the debits charged that the total premiums were reduced approximately $800,000 from what would have been collected had the manual rate been charged on every policy. It is difficult to conceive that such a system can even ap- proach accuracy. In order to do so it is imperative that there be universal and uniform inspection, with schedule rating ap- plied to every risk. But even when that is accomplished, the credits and debits will not balance unless the standard used for comparison is the exact average of conditions throughout the Commonwealth. Clearly, such a standard could not be estab- lished, nor would it be desirable. In safety devices there should be no standard except perfection. Where the experience rating plan is in operation, the pre- mium rate of the individual employer is raised or lowered in accordance with, and in exact proportion to, the determined cost of accidents actually occurring in his own establishment. The accident cost for each classification is accurately deter- mined and proportioned on a pay-roll basis among the estab- lishments making up that classification. The employer whose plant has an accident cost lower than the average is allowed on his next premium a certain percentage of the difference. But always there is another plant, or perhaps more than one, with 1917.] SENATE — No. 370. 45 an accident cost higher than the average, and the next premium charged to the owner or owners is increased by the same per- centage. By this method all reductions from the manual rates are offset by corresponding increases, and the gross premiums collected are the same as though the manual rate had been collected on every risk. In other words, the experience rating plan cannot be in- accurate, while the schedule rating plan can hardly be other- wise. Effect on Accident Prevention. If the schedule rating plan be adopted exclusively, an em- ployer, in order to obtain a reduction in his premium rate, need do nothing except install such safety devices as happen to be obtainable. When he has provided them he is entitled to a lower rate, regardless of whether they actually reduce accident frequency and cost. Under these conditions a busy manu- facturer can hardly be expected to devote any considerable portion of his time to the study of methods of reducing the number of accidents. But experts agree that safety devices are not the leading factor in accident prevention; they may be provided by the employer, but discarded by the employee, — a condition which is dealt with later in this report. Yet in a factory where this proved to be the practice the employer, under the schedule rating system, would get the specified credit, although the hazard was not at all reduced. The real effective force in accident prevention is education, applied to both employer and employee. This factor is given slight consideration in the schedule rating system, the only allowance made for it being the award of a credit for the establishment and maintenance of a safety organization within a plant. With the experience rating plan, however, there is constantly before the employer the thought that each accident lessens the reduction which he may hope to obtain in his next premium, and, if too often repeated, wipes away all chance of a reduction and causes instead an increase. In other words, each accident means to him a direct financial loss; naturally, he will strive constantly to avert accidents. He 46 COMPENSATION INSURANCE RATES. [Feb. will provide safety devices, and having bought them he will insist that they be used, because his ensuing premium must be reduced to compensate him for his outlay. He will take such steps as may be necessary to keep before his employee at all times the thought that constant watchfulness is the price of freedom from injury, with its resultant pain and partial loss of wages. He will do all that would be done if the schedule rating system were applied, and will then go several steps further. Such humanitarian instincts as he may have will be supple- mented by compelling financial considerations, and in the light of statistics quoted elsewhere in this report it appears that such a coalition of forces is necessary if results are to be obtained. While much of the phraseology, many of the statements, and some of the conclusions contained in the foregoing report do not fairly represent the individual views or meet with the un- qualified approbation of some of the members of the committee who subscribe to it, the undersigned concur in the general re- sults and recommendations as tending to better existing con- ditions. Respectfully submitted, JAMES F. CAVANAGH. JOHN F. SHEEHAN. WM. W. KENNARD. ESSEX S. ABBOTT. ROBERT T. KENT. WILLIAM H. SULLIVAN. CHARLES F. GARRITY. 1917.] SENATE — No. 370. 47 Appendix to Majority Report. AMENDMENT TO PRESENT LEGISLATION. Chapter 751 of the Acts of 1911, as amended by Chapters 172 and 571 OF THE Acts of 1912, is further amended by adding after Part V of said Chapter, Part VI. Part VI. Relative to the Payment of Compensation to Employees for Personal Injuries received in the Course of their Employ- ment. 1 Section 1. Any employer upon recehdng from the insurance 2 commissioner a permit as provided in section two of Part VI, shall 3 be a subscriber within the terms of Part V of this act, and shall be- 4 come Uable to make all payments provided for in Part II and acts 5 in amendment thereof and in addition thereto, and shall be subject 6 to the provisions of Parts I, II, III, and V of said chapter, and acts 7 in amendment thereof and in addition thereto, and of sections twenty, 8 twenty-one, and twenty-two of Part IV of said chapter and acts in 9 amendment thereof and in addition thereto. 1 Section 2. The insurance commissioner may issue to an em- 2 ployer, under such terms and conditions as the insurance commis- 3 sioner may determine, a permit authorizing said employer to pay the 4 benefits as pro\dded by chapter seven hundred and fifty-one of the 5 acts of the year nineteen hundred and eleven, and "ah acts in amend- 6 ment thereof and in addition thereto, and upon the issuance of said 7 pei-mit such employer shall be regarded as a subscriber within the 8 terms of said chapter so far as apphcable within the meaning of said 9 chapter. 10 Before issuing such permit the insurance commissioner shall satisfy 11 himself as to the financial responsibility of the employer and the 12 employer's abiUty to carry out the provisions of chapter seven hundred 13 and fifty-one of the acts of the year nineteen hundred and eleven, and 14 acts in amendment thereof and in addition thereto, in the spirit of the 15 act as defined by the insurance commissioner. The insurance com- 16 missioner shall, however, require that such emploj-er: 17 (a) File with the treasurer and receiver general of the common- 18 wealth securities in an amount not less than fifty thousand dollars, 48 COMPENSATION INSURANCE RATES. [Feb. 19 and for such additional amount as the insurance commissioner from 20 time to time deems necessary, having due regard for the character of 21 the employer's business, the number of employees and the wages 22 paid to employees. Such securities shall be deposited with the treas- 23 urer and receiver general of the commonwealth under a trust agree- 24 ment, in such form as the insurance commissioner may determine, 25 appointing the treasurer and receiver general trustee of such securities, 26 with the authority to liquidate for the purpose of paying the obliga- 27 tions of said employer under the workmen's compensation act. 28 (6) Such employer shall insure with the association his catastrophe 29 hazard, so-called, and for the purpose of this act a catastrophe hazard 30 shall be deemed to be any accident causing injuries to five or more 31 persons and involving compensation payments of twenty thousand 32 dollars or more. The rate of premium for such risk assumed by the 33 association shall be fixed by the insurance commissioner. 1 Section 3. -For the purpose of defrajdng the expenses of ad- 2 ministering the workmen's compensation act, the said employer shall 3 file with the insurance commissioner an estimate of the pay roll of his 4 employees for the ensuing twelve months, and the insurance com- 5 missioner shall apply to this pay roll the premium rate which he has 6 approved for a similar business and classification in the association, 7 and the said employer shall pay to the treasurer and receiver general 8 of the commonwealth one per cent of the premium so ascertained by 9 the insurance commissioner, and at the expiration of the twelve 10 months for which the pay roll is so estimated he shall make a return 11 of any additional pay roll for the period so covered, to which addi- 12 tional pay roll the insurance commissioner shall apply the premium 13 rate as above, and the employer shall pay to the treasurer and receiver 14 general of the commonwealth an amount equal to one per cent of the 15 premium figured upon such additional pay roll. 1 Section 4. Upon the occurrence of a personal injury, a subscriber 2 under this section shall immediately forward to the industrial accident 3 board a report of such injury, and shall pay compensation as provided 4 by Part II, section four of chapter five hundred and seventy-one 5 of the acts of the year nineteen hundred and eleven, and amendments 6 thereto. 1 Section 5. Upon the failure of a subscriber to make payments in 2 accordance with the order of the board, as provided in the previous 3 section, or the order of the board made after investigation or hearing, 4 the industrial accident board shall immediately forward a report to 5 the attorney-general, who shall forthwith institute suit in the name 6 of the commonwealth for the benefit of the injured employee, and 7 may proceed against the security deposited with the treasurer and 8 receiver general. 1917.] SENATE — No. 370. 49 1 Section 6. Upon the failure of a subscriber to make the payments 2 as ordered by the industrial accident board, the employee or his de- 3 pendents shall be entitled to double compensation. Failure on the 4 part of a subscriber to conform to the orders or requirements of the 5 industrial accident board, the insurance commissioner, or any com- 6 mission or board having authoritj- relative to the transaction of 7 business or the safety of employees under the workmen's compensation 8 act, shall be deemed sufficient cause, after such hearing as the in- 9 surance commissioner may determine, for the cancellation of the 10 permit of such subscriber. 1 Section 7. The provisions of Part VI, in so far as appHcable, 2 shall apply to the Massachusetts Employees Insurance Association. 1 Section S. This act shall take effect upon the first day of January 2 in the year nineteen hundred and eighteen. 50 COMPENSATION INSURANCE RATES. [Feb. AN ACT RELATIVE TO PAYMENTS TO EMPLOYEES FOR PERSONAL INJURIES RECEIVED IN THE COURSE OF THEIR EMPLOYMENT AND TO THE PREVENTION OF SUCH INJURIES. 1 Section L Part V of chapter seven hundred and fifty-one of the 2 acts of the year nineteen hundred and eleven, as amended by chapters 3 one hundred and seventy-two and five hundred and seventy-one of 4 the acts of the year nineteen hundred and twelve, is hereby further 5 amended by inserting after the word "twelve", in the last line of 6 section two, the following: — or an employer who has received a 7 permit issued by the insurance commissioner as provided in Part VI 8 of this act, — so as to read as follows: — "Subscriber" shall mean an 9 employer who has become a member of the association by paying a 10 year's premium in advance and receiving the receipt of the association 11 therefor, provided that the association holds a license issued by the 12 insurance commissioner as provided in Part IV, section twelve, or an 13 employer who has received a permit issued by the insurance com- 14 missioner as provided in Part VI of this act, — and by striking out all 15 of said section three of said Part V and inserting in place thereof the 16 following : — Section S. The association shall file mth the insurance 17 department its classifications of risks and premiums relating thereto 18 and any subsequent proposed classification or premiums, together 19 with any schedule or plan for adjusting the rate to the hazard of the 20 occupation, none of which shall take effect until the insurance com- 21 rnissioner has approved the same as reasonable and proper for the 22 risks to which they respectively apply. 1 Section 2. Part IV is hereby amended by striking out section 2 two and insertmg in place thereof the following: — The board of 3 directors of the association shall consist of twentj^-one members, who 4 shall hold office for the term of one year or until their successors are 5 qualified. Eleven of said directors shall be appointed by the governor 6 from the members and ten to be elected by ballot by the members, as 7 the by-laws may provide. At least seven days before the annual 8 meeting of the association for the election of officers, the governor of 9 the commonwealth shall appoint eleven directors, and shall immedi- 10 ately • certify to the secretary of the association that such appoint- 11 ments have been made. 1917.] SENATE — No. 370. 51 1 Section 3. On and after January first, nineteen hundred and 2 eighteen, no person, firm, corporation or company shall enter into 3 any contract to pay compensation under the terms of chapter seven 4 hundred and fifty-one of the acts of the year nineteen hundred and 5 eleven, and acts in amendment thereof and in addition thereto, except 6 the Massachusetts Employees Insurance Association and any self- 7 insurer who has received a permit as a subscriber from the insurance 8 commissioner. 1 Section 4. Section four of Part II of chapter seven hundred and 2 fifty-one of the acts of the year nineteen hundred and eleven, as 3 amended by section one of chapter ninety of the general acts of nine- 4 teen hundred and sixteen, is hereby amended by striking out said 5 section and inserting in place thereof: — Section 4- Whenever an 6 injury to an employee has been reported the insurer shall pay com- 7 pensation for such injury if the employee is incapacitated for a period 8 of at least ten days from earning full wages. Such compensation shall 9 begin on the eleventh day after the injury and shall be paid on the 10 seventeenth day after the injury, unless the industrial accident board, 11 or a member thereof, issues an order, upon the -wTitten request of the 12 insurer, suspending the payment of such compensation pending an 13 investigation to determine the liability of the insurer. When com- 14 pensation shall have begun it shall not be discontinued except with 15 the wTitten assent of the employee or the approval of the board or a 16 member thereof: provided, however, that such compensation shall be 17 paid in accordance with section ten of Part II of said chapter seven 18 hundred and fifty-one, as amended by section five of chapter five 19 hundred and eight of the acts of the j^ear nineteen hundred and four- 20 teen, if the employee in fact earns wages at any time after the original 21 agreement is filed. 1 Section 5. Part IV of chapter seven hundred and fifty-one of the 2 acts of the year nineteen hundred and eleven is hereby amended by 3 adding after section twenty-four of said Part IV a new section, to be 4 known as section twenty-five: — Section 25. The directors of the 5 Massachusetts Employees Insurance Association shall be directly 6 responsible on failure of the association to comply with any lawful 7 order of the industrial accident board or of the insurance commis- 8 sioner, and shall be subject to a fine of not less than fifty or more than 9 five hundred doUars. 1 Section 6. Chapter thi'ee hundred and fourteen of the special 2 acts of nineteen hundred and fifteen and chapter two hundred of the 3 general acts of nineteen hundred and sixteen, and all acts and parts of 4 acts inconsistent herewith, are hereby repealed. 52 COMPENSATION INSURANCE RATES. [Feb. 1 Section 7. So much of this act as authorizes its acceptance by the 2 Massachusetts Employees Insurance Association shall take effect 3 upon its passage, and the provisions relative to the appointment of 4 the directors of the Massachusetts Employees Insurance Association 5 shall be accepted by the association and the acceptance filed with the 6 insurance commissioner on or before September first, nineteen hun- 7 dred and seventeen, but it shall not take effect until so accepted, and 8 then shall take effect on January first, nineteen hundred and eighteen. 1917.] SENATE — No. 370. 53 MINORITY REPORT. I am unable to agree with the report of the majorits' of the committee because the recommendation that all insurance com- panies, save the so-called State company, be eliminated from business is, in my opinion, entirely outside the scope of the inquiry which this committee was appointed to conduct. Reference to the resolve creating the committee will make it plain that the duty of the committee was to investigate the subject referred to in the message of His Excellency the Gover- nor, particularly with regard to rate making and accident pre- vention, and further reference to the message of the Governor will make it clear that that which dictated the special message of His Excellency was a problem regarding the making of rates which threatened the creation of an insurance monopoly and the elimination of weak insurance companies. It is apparent from the reading of the Governor's message that the creation of a monopoly and the stifling of competition is something which he at least deplored. The only excuse to be found, in my opinion, for departing from the original purpose of the Governor's recommendation would- be to urge that State fund insurance be adopted. The Ohio system, satisfactory to employer and employee, because of better rates to the former and greater minimum and maximum benefits to the latter, has few opponents in that great industrial State. The committee, not being able to unite on State in- surance, but with a reasonable belief in its efficiency, proposes a monopoly which I believe unfair. No reason can be shown why one company out of a score should be selected by legislative enactment to do all the industrial accident insurance of the Commonwealth. During the hearings before the committee no notice was given and no discussion was publicly had upon the matter which is the main recommendation of the majority of this committee. I do not believe that any insurance company, nor any body or 54 COMPENSATION INSURANCE RATES. [Feb. number of employers nor any persons interested had any notice or knowledge that this committee was considering the question of eliminating private companies from competition. That matter has been before the Legislature five different years, and five different Legislatures have rejected the proposal to create a monopoly in the so-called State company. It seems to me that it is decidedly unfair for this committee to make a report which will recommend drastic legislation which was not dis- cussed, and with respect to which none of the parties interested had the right to be heard before the committee, unless that proposed legislation is designed to give state fund insurance. For the reason, then, that the recommendation is beyond the scope of our inquiry, and for the further reason that interested parties were not given a fair opportunity to be heard upon the question, I am unable to concur with the report of the majority upon this question. The problem of rate making was the principal matter dele- gated to this committee by the message of His Excellency the Governor, and by the resolve creating the committee. At the hearings before the committee representatives of the so-called State company, of other mutual companies and of several of the larger stock companies appeared, and from the testimony given it is apparent that the present situation as to the making of rates in Massachusetts is entirely acceptable, and that whatever defects existed in the plan for bureau rate mak- ing, as it was originally introduced in Massachusetts, have been eliminated; and it was the testimony of every insurance repre- sentative who appeared before the committee that the system was entirely satisfactory. The committee has investigated carefully the bureau systems in vogue in the city of New York, and, more particularly, the National Workmen's Compensation Service Bureau, and has had the benefit of the discussion which took place at the conference in Washington, D. C, besides studying at close range the Ohio system. Upon the evidence, and from personal inspection of the systems in operation, I am convinced that there is no need of legislation to alter the exist- ing method of rate making in Massachusetts, and that only State fund insurance can add to the efiiciency of the present system. As the committee does not purpose to go to this 1917.] SENATE — No. 370. 55 length, and as there is no call by manufacturer or workman for legislation along this line at this time, I propose no measure for consideration. From testimony of the Insurance Commissioner of Massa- chusetts, who is recognized as the ablest official of his kind in the country, it would appear that the bureau system in vogue in Massachusetts is one largely devised by him and one which at least meets with his approval. No one who has spoken before the committee has given any evidence critical of the present bureau methods; no one has suggested any change; no one has intimated that there is necessity or warrant for the concentration of this insurance in one monopolistic company; and therefore I am of the opinion that, under the skillful guidance of the Insurance Commissioner, the bureau system as it prevails in Massachusetts can be made to serve the purpose for which it is designed, and ultimately solve the problem of rate making. Some testimony was given before the committee favorable to the establishing in Massachusetts of a system by which em- ployers of financial stability will be permitted to extend the benefits of the compensation act to their employees without insuring their liabilities in any insurance company. I do not recognize the necessity for such legislation. The interests of labor are not well served by self-insurance, since such a system makes for too intimate contact between the employer and the employee, and possible abuses resulting from that close re- lationship in the adjustment of losses outweigh any probable benefit that may be derived from whatever may be saved in insurance cost. Under the insurance situation as it exists to- day, while there is competition between the stock and mutual companies, every employer has an option to choose as between the two classes of insurance, and as respects mutual insurance, an opportunity is now afforded him practically to become a self-insurer. I do not agree that there is need for self-insurance legislation. It is my belief that healthy competition between two kinds of insurance which is extended by stock and mutual companies is not only desirable but in the interest of the beneficiaries under the compensation act. The testimony of the chairman 56 COIMPENSATION INSURANCE RATES. [Feb. of the Industrial Accident Board given before this committee was to that effect, and further, from his testimony it would appear that the treatment accorded to the injured employees and their dependents by the stock liability companies was at least equal to that of the proposed so-called State company and other mutual companies. Since the rates are uniform, and are and will continue to be made equitable by reason of the opera- tion of the Bureau, and further, by reason of the law requiring the Insurance Commissioner's approval of their adequacy, the only real competition that can exist between the two classes of insurance, or between any of the companies, is competition in service, and that in its last analysis means that the companies must direct their efforts toward the diminution in the number or severity of injuries, that is, toward accident prevention, and must strive to excel in the quality of the service rendered, which means in the humane and fair treatment of the bene- ficiaries under the act. It is at least worthy of notice that the chief recommendation of the majority of the committee, which would create a monop- oly of the insurance business in this line in Massachusetts, and which would at the same time make insurance in that company compulsory upon practically every employer of labor in Massa- chusetts, would at the same time amalgamate the employers in Massachusetts into one association; and it is conceivable that so powerful an amalgamation and organization, opposed as the interests of its members must necessarily be to the workingman, would have a very considerable restraining effect upon legisla- tion in the interests of the worker designed to benefit under the compensation act. I believe that the workmen's compensation act has not yet attained its greatest usefulness. I believe that it can be further extended; and that greater benefit can be granted to victims of industrial misfortune. I believe that the interests of the workers demand that there shall be no control vested in any one great corporation, such that further extensions of the compensation principle can be obtained only after conflict with that organ- ization. Many pending bills, if enacted into law, can be of vital assist- ance to the employees. Treatment by his own physician, with 1917.] SENATE — No. 370. 57 proper safeguards, can be accorded; minimum and maximum benefits may be advanced; more stringent observance of laws compelling safety devices should be required; waiting period reduced to seven days. All these benefits will come in time, and, under proper credits for good experience, they can be given without financial strain upon the employer. Schedule rating presented no reason for the employer giving heed to wel- fare work, but experience rating will soon convince him that it is wise to place his plant in safe condition and secure credits therefor. I am heartily in accord with the recommendations of the ma- jority of the committee with regard to the transfer of powers from the Board of Labor and Industries to the Industrial Acci- dent Board. I am also heartily in favor of the system of merit rating which is dependent upon the production of individual experience warranting alteration in the basic rate. From the testimony given before this committee it is apparent that much has been done by the private insurance companies in the way of welfare work and in the promotion of campaigns for safety. Entirely apart from the other reasons given in this report, it seems to me that it would be disadvantageous to the cause of labor to deprive the State of the benefit of the welfare and acci- dent prevention work which has been conducted by the insur- ance companies, which have had large experience in such matters. I agree fully with the committee that the benefits shown in Ohio of a consolidation of all State departments having to do with the interests of the workingman would be of incalculable advantage to him, would provide him with home access to those whose duties are to care for him, and would save the State a vast amount of money now spent in duplication of work. As has been said in this report, no demand has been made by any interest offering a real reason for the elimination of the pri- vate insurance companies, as recommended by the majority of the committee. In my opinion, every interest of the working- man is served by the present situation, which permits competi- tion between the companies. While I believe that it would be desirable to establish in this Commonwealth a State fund which would operate as does the State fund in Ohio, I am opposed to 58 COMPENSATION INSURANCE RATES. [Feb. legislation the only effect of which is to give to a private cor- poration special advantages which are denied to other similar corporations. There are several mutual companies in Massa- chusetts older and as efficiently managed as the Massachusetts Employees Industrial Association. These companies have been chartered by the State; they have large investments in their equipment; they have policy holders who desire to continue their insurance with them. Apparently no thought has been given as to whether, if one company is to be selected to carry this insurance, some of the other companies might not have as good a claim as the company which is specially favored by the recommendation of the majority. There is nothing to prevent the partisans of any company from attempting to amend the bill so that their favorite may become the beneficiary of the proposed legislation. There is nothing to prevent two or more companies uniting and offering amendments to the bills presented by the committee, so that they may have the monopoly of the business. GEORGE H. JACKSON. Feb. 14, 1917. 1917.] SENATE — No. 370. 59 MINORITY REPORT FROM THE JOINT SPECIAL COMMITTEE ON WORKMEN'S COMPENSATION INSURANCE RATES AND ACCIDENT PREVENTION. Boston, Feb. 15, 1917. To the Honorable Senate and House of Representatives of the Commonwealth of Massachusetts. Unable to concur in all the conclusions and recommendations of my associates upon this special committee, I file herewith a minority report. The principal recommendation wherewith I disagree is clearly beyond the scope of our instructions. It pro- poses to solve compensation insurance rate making by abrupt and arbitrary exclusion from the Commonwealth of all but one company writing this business. This is also so potentially pa- ternalistic as to invite my further earnest opposition. 1 endorse the majority recommendations touching experience merit rating and accident prevention, and I favor some proper consolidation of the labor boards into one bureau. I also agree with the majority that workmen's compensation insurance should be made compulsory. The narrative statement preliminary to the recommendations of the majority report is an ample and comprehensive review of the history of compensation insurance in the State, and also of the activities of this committee, which have been painstaking to a degree. Excessive Rates not in Evidence. In the last days of the session of the Legislature of 1916, out of the events of which this committee was created by special order, there was heard a great deal about "excessive" rates charged for compensation insurance. Six persons representing employers appeared before the committee; four came as individ- ual employers; one represented a shoe manufacturing associa- 60 COMPENSATION INSURANCE RATES. [Feb. tion; the other represented employers of 100,000 persons. He did not report nor record that association as critical of the rates charged its members. In fact, this association recommended that the insurance companies work out their rate problems to a satisfactory conclusion before any legislation be attempted. Nor did the individual employers complain of the rates they paid. Hence I am by no means satisfied that this contention of ex- cessive rates has been sustained by the evidence produced at the hearings of this committee. Provision for Self-insurance. The earlier talk of "excessive" rates was largely voiced by employers carrying very large pay rolls. The form the state- ment took was that on the rates charged the premiums were very much in "excess" of their experience of loss. This doubt- less was true. By "self-insurance" (a misnomer for a more or less prevalent system of indemnifying injured workmen under the terms of the compensation act, yet without legally adopting it) these critics were enabled to indemnify their employees at less than insurance cost. This system is available for but relatively few employers. I concur with the majority that acceptance of the workmen's compensation act by employers should not be made contingent upon insurance in any insurance company. Employers should have the privilege of extending the benefits of the act to their employees without insurance, upon satisfying the Insurance Commissioner of their continuing financial ability to make the payments and furnish the benefits provided by the act. This privilege is accorded employers in all the New England States except Massachusetts, and in most of the highly developed in- dustrial States of the Union. For the purpose of putting into effect this particular recommendation I submit as an appendix to this minority report a draft of a bill. No Legislation needed. The evidence before the committee immediately discovered and emphasized differences between the stock and the mutual companies writing compensation insurance as to the manner in 1917.] SENATE — No. 370. 61 which rates were being made and the manner in which they beheved they should be made, as well as the question of adequacy and alleged excessiveness. The differences are ap- parently the inevitable result of the efforts made in 1912 to establish a compensation insurance monopoly, which, fortu- nately, was averted. It has been impossible to smooth out the resultant condition of affairs, even by the most intelligent and the most earnest efforts to that end. It happens now, however, that rate making is being more satisfactorily done, and the occasion for legislation is still further eliminated. I feel it no part of this committee's jurisdiction to take sides in this contro- versy, but rather to let the two forms of service continue under the supervision the Insurance Department is helpfully bestow- ing. Nor yet is it a matter for legislation, for such could not be framed without partisanship, and partisanship is not a legis- lative function. Legislation to determine a business dispute is out of place and dangerous. Another element in the conditions has been the change in the scale of benefits by each successive Legislature since 1912. This does not mean that I am opposed to extension of benefits. I favor such extension and put myself on record elsewhere in this report. But what I do mean is that the annual changes in the schedules have made it impossible to fix accurate rates because of the lack of sustained experience. If the terms of the act could in some way be left unchanged for a reasonable time, the fixing of accurate rates could be easily effected. But changes are inevitable, and rate making must, perforce, proceed as best it can. Much was said to the committee by the Insurance Commis- sioner himself about "well-managed companies," from which it appears he has confidence in a substantial number of companies of both kinds. The excellent security furnished the insuring public through the administration of the Commissioner's present supervisory functions is substantially all the present situation demands or requires. 62 COMPENSATION INSURANCE RATES. [Feb. Commissions ok Compensation Insurance do not reduce Indemnities. A fallacy was emphasized during the hearings that was mis- leading in its significance. There was persistent repetition of the statement that the stock companies' acquisition element of one-sixth of each dollar of the premium was improperly large, and that if it were smaller more money would go to the injured workman. This deduction is not sound. The indemnity is fixed by law. It is paid to the beneficiary, and has no relation to the premium nor any element in it beyond the single fact that, by virtue of the insuring contract, certain obligations are to be met. That a certain factor of the premium is applied one way or another makes no difference as to the fulfillment of the obliga- tion or the performance of the contract. For a similar injury does the injured workman receive more from a mutual com- pany because of its smaller acquisition expense than from a stock company? No. Commission on Compensation Insurance should be retained. There was much questioning by some of the committee along the line of acquisition expenses, and criticism developed in the matter of this 17^ per cent, reported by the stock companies. Still more was heard about the payment of any commissions to brokers, who are, of course, paid out of the figure referred to above. There is much to be said in favor of the retention of commissions to brokers, though it is a matter of regret that the committee heard the affirmative aspect of this phase of the ac- quisition of business but illy presented. In this factor of the acquisition expense of stock companies the special or local agent and the broker are paid out of the gross acquisition cost, and in a sense stand upon a not dissimilar footing. The special agent represents his company under appointment by the general agent for such company. The broker is an unattached man who places insurance for his clients either in companies they elect or that he advises, generally at that time not being agent for any compensation carrying company whatever. 1917.] SENATE — No. 370. 63 Work of Education by Agents and Brokers. But for the active work of education by agents and brokers it is a certain fact that many of the small employers of the State would even to-day not be insured under the terms of the act. The larger employers, more conscious of conditions, insured at once. If the experience of these solicitors could be summarized it would be enlightening to learn that the losses these selfsame small insurants have sustained would in many cases have been ruinous had they been obliged to meet the obligations directly. After learning the conditions, their gladly paid premiums have not been burdensome, but generously protective. The laborer is worthy of his hire, and these workers in this field earn their money none too easily. Mutual companies do not pay commissions to agents or brokers, yet a considerable staff of men at satisfactory salaries is employed. These men do a variety of work, combining solici- tation with other work and other work with solicitation. A not unimportant part of this work is analogous to that of the agent or broker. The division of the salary pay roll into acquisition and other expense cannot, in the nature of things, be worked out to the exactness of the commission rates paid by stock com- panies. Travel and other expense entailed by the mutual's salaried men must not be overlooked. That further reduces the difference. The campaign of education by the mutuals has not been overlooked. What makes Insurance secure? Insurance in principle and in fact is made possible largely by its volume, and safe in a great degree by that very volume and also by its widely scattering locations and different kinds. Then from the larger volume created — and for the purposes of this statement it is of scant concern whether it is placed on the books of the various companies by its agents or by brokers — it follows that the elimination of the broker may at once restrict the wide average and divergence of risks just so much, and cor- respondingly endanger and weaken the whole insurance struc- ture. The amount of compensation insurance placed in the 62 COMPENSATION INSURANCE RATES. [Feb. Commissions on Compensation Insurance do not reduce Indemnities. A fallacy was emphasized during the hearings that was mis- leading in its significance. There was persistent repetition of the statement that the stock companies' acquisition element of one-sixth of each dollar of the premium was improperly large, and that if it were smaller more money would go to the injured workman. This deduction is not sound. The indemnity is fixed by law. It is paid to the beneficiary, and has no relation to the premium nor any element in it beyond the single fact that, by virtue of the insuring contract, certain obligations are to be met. That a certain factor of the premium is applied one way or another makes no difference as to the fulfillment of the obliga- tion or the performance of the contract. For a similar injury does the injured workman receive more from a mutual com- pany because of its smaller acquisition expense than from a stock company? No. Commission on Compensation Insurance should be retained. There was much questioning by some of the committee along the line of acquisition expenses, and criticism developed in the matter of this 17^ per cent, reported by the stock companies. Still more was heard about the payment of any commissions to brokers, who are, of course, paid out of the figure referred to above. There is much to be said in favor of the retention of commissions to brokers, though it is a matter of regret that the committee heard the affirmative aspect of this phase of the ac- quisition of business but illy presented. In this factor of the acquisition expense of stock companies the special or local agent and the broker are paid out of the gross acquisition cost, and in a sense stand upon a not dissimilar footing. The special agent represents his company under appointment by the general agent for such company. The broker is an unattached man who places insurance for his clients either in companies they elect or that he advises, generally at that time not being agent for any compensation carrying company whatever. 1917.] SENATE — No. 370. 63 Work of Education by Agents and Brokers. But for the active work of education by agents and brokers it is a certain fact that many of the small employers of the State would even to-day not be insured under the terms of the act. The larger employers, more conscious of conditions, insured at once. If the experience of these solicitors could be summarized it would be enlightening to learn that the losses these selfsame small insurants have sustained would in many cases have been ruinous had they been obliged to meet the obligations directly. After learning the conditions, their gladly paid premiums have not been burdensome, but generously protective. The laborer is worthy of his hire, and these workers in this field earn their money none too easily. Mutual companies do not pay commissions to agents or brokers, yet a considerable staff of men at satisfactory salaries is employed. These men do a variety of work, combining solici- tation with other work and other work with solicitation. A not unimportant part of this work is analogous to that of the agent or broker. The division of the salary pay roll into acquisition and other expense cannot, in the nature of things, be worked out to the exactness of the commission rates paid by stock com- panies. Travel and other expense entailed by the mutual's salaried men must not be overlooked. That further reduces the difference. The campaign of education by the mutuals has not been overlooked. What makes Insurance secure? Insurance in principle and in fact is made possible largely by its volume, and safe in a great degree by that very volume and also by its widely scattering locations and different kinds. Then from the larger volume created — and for the purposes of this statement it is of scant concern whether it is placed on the books of the various companies by its agents or by brokers — it follows that the elimination of the broker may at once restrict the wide average and divergence of risks just so much, and cor- respondingly endanger and weaken the whole insurance struc- ture. The amount of compensation insurance placed in the 64 COMPENSATION INSURANCE RATES. [Feb. stock companies by brokers is so large as to be an important factor in the security of the business, and hence the security of the beneficiary. Accident Prevention should be fostered. As to accident prevention and reduction of accidents by every means reasonable and possible there can be but one view. The employer should be required to employ every proper means he can command. The employee should equally be required to use such. Credits and penalties should be accorded to and exacted of the employers, and penalties exacted of or imposed upon neglecting employees. This should not be treated as a one-sided matter. Any effective method of reducing the terrible death toll and of reducing the greater total of crippling injuries may well command the instant attention of the Legislature, and with any sound effort in this direction I am in cordial and hearty accord. The relation between these conditions sought and results accomplished and the rates for compensation insur- ance is direct, and that balance will adjust itself in due and proper course. Out of the evidence presented to this committee, the associa- tion of employers earlier referred to may be accepted as speak- ing for employers generally. Its subcommittee (given full powers of recommendation) submitted to this committee a re- port that so emphasizes the keen interest and concern of em- ployers on this especial point that the recommendations are not out of place here, and particularly so when the desire was ex- pressed that the recommendations find place in this committee's report. The association's committee recommended as follows: — Prevention of Accidents. 1. Safety standards should be adopted with due allowance made for conditions in individual plants. 2. Education of employees through shop committees or otherwise, and education of the general public along safety lines, shall in some way be counted to the credit of the employer. The National Safety Council recognizes that in safeguarding, mechanical devices equal 20 per cent, and education equals 80 per cent. 3. Neglect to use approved devices or obey regulations, approved by the State Board and properly posted, shall be construed as "serious and 1917.] SENATE — No. 370. 65 wilful misconduct," and subject the workman to the penalty imposed by the compensation act. 4. Some plan should be adopted to c6-ordinate all inspection and pro- vide adequate training for the inspectors. Insurance Rates. 1. The compensation insurance situation is generally acceptable to . employers. We recommend that the insurance companies work out then- rate problems to a satisfactory conclusion before legislation is attempted. 2. Some provision to permit self-insurance is desirable under careful regulation as to solvency and administration. Unrestricted Competition not desirable. Unrestricted competition would be unsafe, first, for the ulti- mate beneficiaries under the act; next, for the security of the contractual obligation; lastly, for the unwisely competing com- pany. Self-invited insolvency would of course defeat the pur- pose of the law. But the knowledge the commissioner has of the financial responsibility of the several companies — and it is admitted that one company may safely write this business at lower rates than another — will secure all the safe, normal and healthy competition needed to spur the carrying companies to excellent service. All of this the commissioner may and can now control. A tactful, wise and impartial exercise of his now quite plenary powers by our commissioner, to whom every citi- zen using insurance of any sort may well pay tribute, will solve a great deal of the troubles now existing. What "Adequate" should mean. Approval of rates through the power now lodged in the Insurance Commissioner will prevent the charging of excessive rates, while that same power will enable that same official to determine that rates are "adequate," which, of course, assures a safe minimum. From such conditions the need of more definite legislation is not clearly apparent. The quibbling as to the meaning or significance or scope of the word "adequate" has caused more trouble than it is worth. "Adequate" should be taken to mean a rate that is right and proper and reason- able, — not so low as to be unsafe, nor so high as to be ex- cessive. 68 COMPENSATION INSURANCE RATES. [Feb. tion be made, when it could now be accomplished, if the in- suring public saw fit, by the voluntary decision to place all risks in this mutual. Governor opposed to Insurance Monopoly. The committee was appointed to investigate "the subject- matter contained in the message of the Governor . . . with . . . reference to the problems of rate making and accident prevention." In vain I have searched the message of the Governor and the order creating the committee to find any warrant whereby the selection of one company and the exclusion of all others can be justified. Instead, I find this sentence in the Governor's message: — The companies, of course, should not be permitted to indulge in un- restricted competition by the adoption of rates which would not be ade- quate to the insurance they extended, and which might result in the destruction of weaker companies and the creation of insurance monopolies, and an ultimate increase in rates. The companies it is proposed to exclude — both mutual and stock — are duly licensed and have obeyed the laws and the rulings and requests of the Insurance Commissioner. Both mu- tual and stock companies are rendering a highly specialized serv- ice to the satisfaction of their patrons. This proposed exclu- sion is an unprovoked and uncalled-for assault upon loyal and honorable quasi public-service institutions. These companies that are to be excluded stand in the position of having been found guilty of an unpreferred charge, and without a hearing, much less a trial. If this State can or if it is to regulate workmen's compensa- tion insurance rates, why select this unusual manner of doing it? If the scheme is sound, why not force at once all life insur- ance business, for example, into some one company which some legislative committee shall decide is the best company for such service? Why not let this theory be extended to all matters where the public pays a price for a commodity or service? The analogy is perfectly fair. 1917.] SENATE — No. 370. 69 Paternalistic Aspect of Majority Recommendation. I am a firm disbeliever in State insurance. But the question here is not that of the State's establishing a monopolistic State fund, though the majority report discusses the Ohio State fund in great detail. The recommendation provides a company with a moral backing by the State, simply one step this side of a State fund. There may be some arguments in favor of a "Simon-pure" State fund, but no justification for conferring the proposed monopoly upon any private insurance company. The majority recommendation smacks of undesired and dan- gerous paternalism. The attempt at monopoly, defeated in 1912 and every year but one since then, was paternalistic, and the present recommendation of the majority is no less so. A compulsory State fund is one thing, but a compulsory private monopolistic company is quite another. Encroachment of Politics threatens. The Legislature has several times expressed its opinion upon a proposition almost exactly the same as the majority now puts forward. The only change of importance proposed in the new recommendation is that the Governor appoint a majority of the board of directors from among the policy holders of the pro- posed company. The majority report offers a certain and defi- nite opportunity for the encroachment of politics. The change will impose upon the Governor the needless and thankless task of canvassing the policy holders for timber for insurance com- pany directors. The men large enough for this sort of quasi- public service are likely to be too busy with their own large affairs to enthuse over such a new responsibility; and the smaller men who might be available because of their lesser busi- ness exactions are not the sort of men who should be selected. Present Conditions satisfactory. These observations upon the principal issue in the majority report raise the single question of the commonplace wisdom of the State's compelling the place or the contractual performance 70 COMPENSATION INSURANCE RATES. [Feb. of its statutory compensation obligations, which are now being otherwise and amply fulfilled. This is an obligation which employers are glad and ready to assume, and which is the thinly spread burden society is willing to bear as the ultimate consumer. The workmen's compensation principle is one that none would wish to see abrogated or in any way limited in its appli- cation. Further legislative assaults upon employers are not warranted by the industrial record of this State. It cannot be gainsaid that legislation thrust upon Massachusetts industries, in spite of which they nevertheless exist, has been in many in- stances undesired, undesirable, injurious, burdensome. Desire to enrich the Act. The hearings of this committee evidenced the desire of em- ployers, equally with the employees, to enrich the act and to extend its benefits in the broadest practicable way. I am frank to say that it was a disappointment to me, and, I believe, to the committee as a whole, that the employers were not represented in greater number to express their satisfaction with existing conditions. Cumulative evidence is not needed to establish an obvious fact, but it is impressive, vital and important of itself as evidencing the widespread atmosphere of favor in which the industries of the State are living vvith regard to this particular thing. Present Insurance Service satisfactory. Out of all this I lead up to a point I wish to emphasize more than any other. We find employers desire to have the compen- sation act well administered. We find employees critical of the shadow rather than of the substance. We find the insurance service praised by the Insurance Commissioner, and it is agreed to be amply flexible for all needs. If legislation be at all the reflection of opinion of the public or of any considerable portion of the public, then there can be no justification to compel the employers to buy this service from one company when they could do the same thing out of free choice. 1917.] SENATE — No. 370. 71 Stock Insurance largely predominates. The vastly larger number of stock companies doing casualty and compensation business in this country as against the very small number of mutuals doing similar business is a fact worth recording. It is a still more significant fact that not over 5 per cent, of the compensation business in the country is carried by mutual companies. The stability of mutuals as respects long- deferred claim obligations remains to be demonstrated. The stability of stock companies as respects long-deferred claim obligations has been amply and repeatedly demonstrated. Warning against State Fund. Though the majority does not recommend a State fund, yet the Ohio State fund is discussed in great detail. It requires slight imagination, only, to foresee an effort to go one step further than the majority recommendation and suggest a monopolistic State fund. As a foreword of forewarning I sub- mit an observation gained as a result of the activities of this committee. There is a great deal to be said in opposition, but I shall be brief. The recent social welfare conference at Washington, which this committee attended, devoted no small number of papers to the subject of State funds only, as well as to State funds and insurance companies in competition. The papers may fairly be summarized as discovering a not inconsiderable atmosphere in favor of the latter and scarcely any for the former, a position that is still further supported by the fact that in ten States where the proposition to establish State funds has been offered it has been rejected. Regarding the Ohio State fund there is sufficient difference of official opinion as to its solvency to cause doubt, at least, of the system's success. The bankruptcy of the Washington State fund is affirmative evidence of the unsound- ness of the State fund system. Insurance Commissioner's View. If the advice of our excellent Insurance Commissioner has any place in guiding or directing the Legislature in its action, it is interesting to note what is said by this man, whose place 72 COMPENSATION INSURANCE RATES. [Feb. among the ofBcials of this kind in the country is acknowledged to be not only eminent but pre-eminent. In a report to the Legislature in 1916, after observations on the proposed increase in rates, etc., he observes on page xix., "... I am one of those who believe that private enterprise should carry on all kinds of business instead of the State, at least until it is clear that the State can do it better and cheaper." When we consider the evidence of the commissioner before this committee in conjunction with all other evidence, the quotation was clearly intended to apply literally to a State fund in the event of the failure of "private enterprise." Still, I do not believe I am misinterpreting the quoted words vv'hen I say it is hardly likely he limited the meaning of "private enter- prise" to a single designated mutual company, when the recqrd constantly finds his praise of both stock and mutual organiza- tion and service. I believe "private enterprise" meant business competition. Private enterprise and public patronage will cause the fittest to survive. If that be the test with the individual it should be the test with business. Loss OF Revenue to State. The total compensation premiums received by all the com- panies in 1915 — the last report at hand — was S4,204,769.23. The mutual companies received 81,385,727.95. The stock com- panies received $2,819,041.28. The mutual companies paid a tax of 1 per cent, on their premiums, or $13,857.28. The stock companies paid a tax of 2 per cent, on their premiums, or $56,380.82. To be exact it should be said that this amount is subject to reduction by a relatively small sum, as the stock companies of Massachusetts charter pay a tax on their capital stock and not on their premiums. Practically all the stock companies are foreign to the State as a matter of charter. If all the premiums are paid to this proposed single mutual the State will lose in revenue 1 per cent, of the non-State stock company premiums. For the purpose of this slightly inexact statement — with data a year old — it is safe to say this loss will be not less than $25,000 a year. The 1916 figures of premiums will be larger, and the loss will follow in exact pro- portion. 1917.] ' SENATE — No. 370. 73 Majority Contention not sustained by Evidence. When successful business men differ so conclusively about the respective merits of stock and mutual insurance; when they freely exercise their choice; when the public does not suffer by the exercise of their choice; when no defects in principle or administration are revealed; when the beneficiaries under the act do not suffer under either form; when the public is not a complainant nor is a burdened purchaser of industrial pro- duction under the dual system; when employers do not com- plain of the dual system, but adopt the form each feels best serves his business needs; when employees through their organ- ization urge State insurance only academically and without constructive plan; when exclusion was not asked; when central- ization in any one company was not asked for; when the insurance department through its official head does not con- demn but commends; when, I say, all these negations are dis- covered I certainly cannot agree with the principal finding and recommendation of the majority. I cannot agree that the com- mittee should go beyond the tasks assigned it or go outside the evidence presented. Therefore, I expect and believe the Legislature will not re- verse its position so wisely taken in 1912, and which no events of the intervening years and no examinations of the conditions of to-day will justify. Respectfully submitted, JOHN G. FAXON. 74 COMPENSATION INSURANCE RATES. [Feb. Appendix to Minority Report. An Act FOR THE Protection of Employers by Individuals and Corporations. Be it enacted, etc., as follows: Section 1. Any employer subject to the provisions of chapter seven hundred and fifty-one of the acts of the year nineteen hundred and eleven, and acts in amendment thereof and in addition thereto, may, upon giving satisfactory evidence to the insurance commissioner of his financial re- sponsibility, together with an agreement to pay to all persons entitled thereto the compensation and other benefits provided by Part II of said chapter and acts in amendment thereof and addition thereto, apply for and obtain a certificate from said commissioner entitling such employer to all the rights, privileges and immunities of a subscriber under said chapter and acts in amendment thereof and addition thereto. Such employer shall thereupon become liable to make all payments provided in said Part II and acts in amendment thereof and addition thereto, and shall also be subject to the provisions of Part III, sections twenty and twenty-one of Part IV, and Part V of said chapter and acts in amendment thereof and addition thereto, said employer being substituted for the association in applying the provisions of said Part III, sections twenty and twenty-one of Part IV, and Part V and acts in amendment thereof and addition thereto. Section 2. Before issuing such certificate the insurance commissioner may in his discretion require from such employer a suitable bond to secure the performance of his obligation hereunder, which may be either the individual bond of such employer, secured by the deposit of cash or securi- ties approved by said commissioner, or a surety bond of some surety com- pany authorized to do business in this commonwealth. Such bond shall run to the commonwealth of Massachusetts and be conditioned for the due and prompt payment of all sums which such employer may become liable to pay under the provisions hereof. Any person entitled to receive any such payment may in any proceeding in his own name under section eleven of Part III of said chapter seven hundred and fifty-one and acts in amendment thereof and addition thereto set up and rely upon such bond, and the court may make such decree for enforcing the liability of such bond as may appear necessary or appropriate. In case of cash being deposited it shall be placed at interest, and the accumulation of interest 1917.] SENATE — No. 370. 75 or dividends on said cash or securities shall be paid to the employer deposit- ing the same. Section 3. The insurance commissioner may in his discretion revoke any such certificate, whereupon the rights, privileges and immunities of the holder thereof shall cease, or said commissioner may at any time re- quire the holder of such certificate to deposit additional cash or securities. Section 4. All acts and parts of acts inconsistent herewith are hereby repealed. 76 COMPENSATION INSURANCE RATES. [Feb. DISSENTING OPINION. As a member of this committee I have attended every meet- ing and have heard all the evidence, have made every pilgrim- age earnestly and faithfully, and I concur with the committee in all its conclusions and recommendations except that pertaining to self-insurance. At the conclusion of our hearings, when all the evidence was in, our committee voted, with one exception, for the conclusions and recommendations incorporated in the majority report; at that time I reserved the right to comment upon my opposition to self-insurance. In order that we might accomplish some definite good for the Commonwealth, which has been most generous with its finances, and which has com- mitted to us the duty of relieving its employers of unnecessary^ financial burdens, I voted with the majority of the committee, because great good would result to the employee and to the em- ployer if all insurance companies, with their horde of lawyers and professional arbitrators, their technical defences and their indifference to the sufferings and needs of the injured workman, were eliminated from the workmen's compensation act. How- ever, now that two members of said committee — one of whom is an insurance agent or broker, with unctuous comment calcu- lated to commend him to all except the injured workman, and another member, who has at all times seemingly been in accord with the committee and who voted for the majority report — have seen fit to dissent from the most vital part of the report, namely, the exclusion of the insurance companies, I feel at lib- erty to voice my bitter protest against self-insurance, as my ex- perience in the trial of causes under the act has proven to me that some employers, now practically under self-insurance, be- cause of the personal loss involved, oppose viciously and un- scrupulously the meritorious claims of their injured workmen. If compulsory compensation insurance, made so necessary by the decision of Ashton v. Boston & Maine R.R., 222 Mass. 65, 1917.] SENATE — No. 370. ' 77 were to accompany self-insurance, my objection to the latter would be less violent, but compulsory insurance must be de- layed until the Constitution is amended, and until then I am opposed to all schemes of self-insurance. WILLIAM H. SULLIVAN. Boston, Feb. 15, 1917. 78 COMPENSATION INSURANCE RATES. [Feb. o a •a .a be si r/3 ^ W H-l m £ ^ ja a) H O 00 « & H Q ^ oi «i Q « IX « c o a « ° « CO PJ p t< ,? s ?; K •< w O o on « to eo 1-4 t^ Cfl oo to *— 1 oo ■w C5 r* oo O CO c» o C5 t^ c^ oo c^ t>- O i-i CC > OJ a ce a a oi p. a o O c3 >> rs o ft O P "ft a H a a o O o a 03 a OI -a CI o fe U O •a a v> O -d 13 03 a o -d 03 03 o a o 13 h:) a 03 fl O 13 13 3 3 o 1917.] SENATE — No. 370. 79 to. t^ oo CO - C3 "5 C^ to 1^ oo CO o" CO ■^ w CO CO (M ■* c^ o 5 2 s s s 1 1 us 00 s: 1 1 1 g o 1 i I 1 1 1 CO i OS OS OS oo CO CO - ^H CO o> 00 ■^ CO . co 1 1 1 1 I 1 ' 1 ^ ' 1 t^ 1 IM lO s CO o ^ • lO lO *— 1 00 ■^ CO s to c* CO t* CO t>. T-l ^^ OS 1 I t 1 03 ! 1 1 1 1 oo 1 »>. •^ !>. _, OO M OS ^ o t-. o o> to - o> 1 ^-( oo 00 O to OS o to OS -<** ■^ Oi oo in OO lO o r* (M CO CO CO oa 00 m h- ■^ O lO ■<*< o -^ Oi CO ^^ o CO to 00 lo 03 ■* ■»< c^ ■^ »o o o -*<^ ■^ o CO 05 CO CO o 05 to cs_ oo C*3 *^ »-H to CO o >« ■^ o ■^ -.a^ »» CM ■^^ «» O 00 CO o oo ^^ CO r t-^ CO to CO 6>» • • • • G • • ' 02 ' >> <; •M o 2 § • • o ■a a * s ' C -.J _5j o o ^ a o e E -a S "3 -»J 1 a o G t3 1 1 ■1 "3 3 -^ 3 "ft a -i OT a cS M S < i 1— 1 05 1 1 8 CO o CO ■.J 3 s a 1 GO 3 3 3 CO 05 OQ < o 1 C 2 c C3 "a j3 3 a. s o3 "S O i -4J •s 1 o a s z 2: O (£ 1^ H t) t3 tS3 < a s 80 COMPENSATION INSURANCE RATES. [Feb. CO o CO ^ oo CD CO CO CO oo ■* C^ CO ■* O •* OS to o TJ< s •*** *M »o o CO t~ »rr 1^ CO CO c» 00 ■«' *o o 2^ t^ c^ b* CO CO CO T-t CO CM »r5 CO o t^ 1-1 OS CD 1-1 Oi o I>. OS CO t-^ t^ oo o oo C-J o CO ■«< CO oo »o ^ CD r^ ic 00 CO . C-l CD oo CO w t- o t'. t^ CO OS W5 OS o CD oT t-T iO CO m oT tO UO ** CO o o c^ o o ** c<» CO -^ ■^ o r- ■'*' ^H o c^ «& C^ oo 1-H t^ r^ CO »o CD t^ o 00 ta CO WD OS t» CO o CO h~ Oi o Oi (M CO «5* oo t- b- t>- o t-» OS CO lo o t- 2^ CO 00 OO o »Ci ,^ lo o O C<) o o OO o CO lO CO o ■<** in ca o >ra CO »n »o '^t« (M o CO r^ •* CO .S ■*-' *— i t^ *-* CD t-- OS ■^ ". CD lO •* io 05 ■ij^ o o wo o CO CD ci" oT >o (m" »o ca CO crs oo lO •^ r-. CO Cl *c o °l o ■* r* oo ■* o OS CO 1*« o CO *-< CO* ^ «l& at VH o (M Oi lO lO (M •* 00 ■* CO CD »o t^ 00 CO b* Si CO CD c^ CD o CO c^ oo o i-H OS CO W5 CO CO o CO OO CO o Oi tc o o ^^ oo o Cl a, CO t^ o> OS CO -M »o 40 o »o o c^ oo CO CO o (M ^n CO c^ -<** o CI o CO lo OO .-H t^ c^ C<1 - c^ 't* » .2 +i C*J CD OS CO t-~ 05_ "*. (M •^ oo OO o OS WO CO CD iC o^ oo" Oi •^t*" oo 02 2= OS OS o Oi Oi Oi ■* CO oc CO -^ >r5 o oo CD Cs 05 C<1 •C oo tji CO c^ 'rr -^ o "5 CO CO O «» I— 1 -<" CO tH »o OS OS CO CO T-< ^-H T)< c^ o ■^ 05 t^ l« ''t* Cl Cj n ,_r CD C4 c; CO ** CO CO »o (M OS o OS »M »— « o a " «© __, 2^ .2 -^ -^ c Cl 3 , WO o «S IH CD -<*< CO Oi 00 o CO ■* •^ t- '2 a ks ■* ^ o C^ ■<»l Oi m T-t oo i-< 1 CO CD 1 Cl C^l t>- '<*< 1 t^ o> CO oo ,^ c^ :* CO l^ IC 01 +J t^ t^ ir^ •* CO t^ in CO CD t~ if ^ a (B CD CD IC c<» C^J -<**^ o ■*- CD C*l_ t^ c_ ■^ 3 5^ ■^ C-T oT CO co" •**" ■^* c^ i^T 00 cf cT rC O CO c^ GC CO ■>1< oo CO CO CO o ■<** CD t>i o r-* ^ ' • • • • • • ;^ • • • • • 1 i . . . a B , , , , , , -^ o 'a a Q ' ■a 3 C3 ■4-> 3 , 3 "3 3 a 3 3 a a a -a a 3 £ >. "S a w 3 1 s a o 3 >1 *H a D d o > i o c 1 o O >> 1 a 3 s W o a 1 g o 3 o O < -a S ■*•> as K C3 3 O 3 3 13 3 c« 1 J 3 1 en a & 3 C3 w 1 1917.] SENATE — No. 370. 81 00 C5 »o CO Ol CO CO -* to CO CO 01 1 to c> o lO •* oo o est 00 t^ ^ '^ lO^ 0^ OS OS 00 CO to to r CO to CD ■«*« ■^ CO CM cs t-* ■^ t^ OS OS oo oo to CD OS c^ s r^ cs to C^ »o in rt« -^ t^ CO to 00 -^ ''i* ^ to ^ ci" CO C5 50 -*l f^ • r> CO t- -* 00 r^ cs cs ^ cs o lO t-- co c^ o; lO '^ ■v c^ 00 CO CO r- c^ 1 CO o oo OS 00 r* r^ (M t--. to ,—1 Oi CM t-^ t-» "^ o (M to -4* c^ <=> C^J to CO Ci oo oo c^ "^ oo CO to 00 CO iC^ to" CO CO »o to »o CO 01 CO ■^ CO CO ■* -^ t^ ■* CO CO CO to CO 00 c^i" •0 CO €0 00 to C) CI o t-- Oi CO o •co - CO -^ 00 -. 1 OS o 1—1 CO o ■^ CO Tf* to "^ to to C) !>• o 1-^ o ■^ ir* to OS CO ^^ OS CO 10 CO O io t^ C3_ o^ ca oi 00^ to 0^ 00 to c^ I>^ '^ ^jT c^ cj" OJ" oT CO to" CO t- CO l>^ lO Ci CO s CO t^ "* cr- co of CO CO ''if 00 c; cs co^ 00 Cl^ CO fO •»^ to -^ C-1 (M CO to to CO 10 00 CO lo o t^ cs OS ■•— ' r~t 00 '"' U5 1 1 Oi CO ■^ Cvl o 1— < 1-H CO 00 !>. CI •r?* o OS CO oo OS (M CO C<1 01 -*« (M CI CO C. CO lO o co~ t^ CO to CO C'l ^_ CO to o cs c^^ to to CO -^ r^ S iO ■«:r to CO CO CO c^ CO *"• 00 . to 00 <0 1 1 o o ,^ o g -^ *- 1 to 00 ^- ,_t CM o uO t- o to ■rji 00 -* c^ to OS t^ o CO o -^ ■^ "*- Os^ CO C2 CO t^ oo i-O" oo o 0* to to to cT CO o CO -* o CO CVJ CO CO CO '^ g CO 1 s ■*:* ^ t^ C4 •^ CO oo oo CO CO *M t^ r^ o o w ■«*< o t^ CO CO c^ »o OS 1 ci to ^ J 1 ci t>- CO ■^ CO (M to OS to CO CO CO to ^ o r- o c-1 00 to to to t— to cI" lO co^ oT oo o gT to CO to cs" CO lO ^ •^ to to lO »o co" 01 CO 3 00 . . c" - .2 -.^ .s , , QQ , , • • ' t^ ^ ■*J u 5 a . . . s C3 ri u 3 3 . , . o . . CO c . . . T3 hH a • ' >* • * 1 " " • a -§ <1 3 o o o 'S s 1 u o < to o CO T3 ■3 -a 1 1 c 't-t 1 c 00 1 s iS 03 3 to § 3 3 H O 01 5 Ph 1 12 1 02 "3 > '3 ;3 'S H a < 3 0; H c e c n e o a 82 COMPENSATION INSURANCE RATES. [Feb. Earned Premiums, Massachusetts Business. Company. 1912. 1913. 1914. 1915. ^tna, SIO.5,674 02 $285,012 88 $215,469 47 $220,816 56 American Fidelity, 31,517 11 59,535 72 5,558 12 487 80 Casualty Company of America, 89,221 03 172,428 32 158,307 48 199,390 79 Employers Indemnity, .... - ~ m 1,525 00 10,290 35 Employers Liability 562,?58 52 1,233,302 36 887,061 78 800,968 06 Fidelity and Casualty, .... 31,999 18 72,653 53 63,577 03 48,502 75 Fidelity and Deposit, .... 17,827 77 56,862 28 55,223 14 40,166 01 Frankfort General .50,573 76 79,349 79 45,914 85 38,631 25 General Accident 12,422 62 30,057 10 43,710 60 23,230 73 Globe Indemnity 16,089 70 51,933 01 55,393 75 43,366 92 Hartford Accident and Indemnity, - - 34,384 16 39,584 73 London Guarantee, 70,871 37 144,668 92 87,846 73 104,001 30 London and Lancashire, .... - 2,385 28 15,640 10 785 91 Maryland Casualty, 55,364 33 107,296 29 72,929 83 69,843 10 Massachusetts Bonding 22,005 40 88,272 75 123,559 35 139,775 29 New Amsterdam, ..... - - 1,862 13 9,286 91 New England Casualty 23,174 71 • 98,877 14 101,363 55 103,655 68 Ocean Accident, 32,007 01 70,336 27 58,548 58 46,617 13 Preferred Accident 873 16 - - - Prudential Casualty, .... - - 1,075 84 2,403 75 Royal Indemnity 61,888 74 116,568 52 101,570 55 77,583 74 Standard Accident, 24,614 07 43,367 06 33,208 04 33,831 71 Travelers, 299,567 41 786,703 44 742,635 89 616,281 31 United States Casualty, .... 22,066 35 58,685 07 39,509 17 46,974 39 United States Fidelity and Guaranty, . 15,882 87 75,671 59 70,967 38 58,919 27 Zurich General, » 8,823 00 39,597 01 34,645 84 Totals ?1,545,899 13 $3,642,790 32 $3,056,440 13 $2,819,041 28 American Mutual $342,320 26 $657,953 41 $344,351 28 $347,103 09 Contractors Mutual, .... 35,862 19 137,425 19 136,323 29 124,202 97 Massachusetts Employees Ins. -Ass'n, 261,319 23 671,841 41 842,136 76 855,395 32 Security Mutual - - 50,311 17 59,026 57 Totals $639,501 68 $1,467,220 01 $1,379,122 50 $1,385,727 95 Grand totals $2,185,400 81 $5,110,010 33 $4,435,562 63 $4,204,769 23 1917.] SENATE — No. 370. 83 Losses incurred, Massachusetts Business. Company. 1912. 1913. 1914. 1915. .Etna $34,112 14 $156,671 92 $132,045 40 $188,831 81 American Fidelity 10,330 85 28,527 39 1,598 25 4.803 00 Casualty Company of America, 30,144 00 109,669 37 65,549 87 192,086 33 Employers Indemnity - - 390 00 4,003 07 Employers Liability, .... 114,904 48 519,501 06 494,108 36 545,731 61 Fidelity and Casualty 8.946 57 39,929 31 32,022 12 38.229 55 Fidelity and Deposit 5,894 85 44,140 32 41,366 86 34.088 15 Frankfort General, 15.963 47 45,700 75 13,570 40 25.902 54 General Accident, 4,932 20 29,269 12 28.244 51 20.869 93 Globe Indemnity, 5,643 09 25.313 03 30.525 97 49.006 94 - - 29,311 37 25.321 59 London Gu.irantee, ..... 8.471 96 64,822 91 65,829 69 115.763 74 London and Lancashire - 3,946 49 13,772 86 299 00 Maryland Casualty 12,297 13 63,219 01 50,426 44 104.839 54 Massachusetts Bonding 11,440 42 24,955 03 101,426 00 113.779 43 New Amsterdam - - 4,200 07 8.348 66 New England Casualty, .... 9,333 90 27,207 55 68,273 61 101.241 78 Ocean Accident, 8,953 54 33,123 87 25,734 66 53,673 95 Preferred Accident 362 00 - - - Prudential Casualty, .... - - 514 16 1.182 01 Royal Indemnity, 20,382 91 47,953 47 51,842 54 76,177 29 Standard Accident, .... 10,634 87 20,760 95 14,095 10 48,427 07 Travelers, 123,013 57 320,641 49 421,520 68 495.354 06 United States Casualty 6,556 64 27,530 41 27,603 74 58.016 33 United States Fidelity and Guaranty, . 7,437 00 47,143 00 40.592 84 23.674 33 Zurich General, 12,204 39 16.554 51 46.459 07 $449,755 59 Sl.692,230 84 $1.771. 120 01 $2,371,355 81 American Mutual, $55,909 25 $192,028 75 $315,146 45 $269,178 52 Contractors Mutual, .... 16,182 27 52,456 55 35,044 ,30 80,492 86 Massachusetts Employees Ins. .\ss'n. 92,584 49 273.711 46 367,164 94 503,291 53 Security Mutual, - ~ 18,433 97 25,203 53 Totals $164,676 01 $318,196 76 $735,789 66 $878,166 44 Grand totals $614,431 60 $2,210,427 60 $2,506,909 67 $3,249,522 25 84 COMPENSATION INSURANCE RATES. [Feb. General Administration Expenses incurred, Massachusetts Business. Company. 1912. 1913. 1914. 1915. Mtna 818,044 86 $34,546 01 $32,169 82 $43,769 96 American Fidelity 7,771 55 4,352 06 678 09 1,341 52 Casualty Company of America, 6,138 41 12,453 68 15,561 63 30,314 91 Employers Indemnity - - - 1,335 70 Employers Liability, .... 41,288 79 60,925 14 43,377 32 55,831 96 Fidelity and Casualty 5,740 92 7,265 35 6,181 59 5,808 07 Fidelity and Deposit 13,504 45 8,608 95 6,880 80 5,851 74 Frankfort General, 6,403 40 7,300 18 4,591 49 5,189 35 General Accident, 5.928 93 2,825 36 0,599 09 4,845 64 Globe Indemnity 4,258 98 6,545 82 6,359 20 5,089 14 - - 8,348 47 10,508 92 London Guarantee, 13,673 31 8,590 72 6,853 32 10,265 79 London and Lancashire - 906 41 3,706 70 551 06 Maryland Casualty 12,884 32 19,924 63 8,905 23 10,965 19 Massachusetts Bonding 5,558 49 12,358 19 12,669 16 18,164 28 New Amsterdam - - 356 97 1,397 71 New England Casualty, .... 5,629 61 11,597 29 13,805 72 20,235 11 Ocean Accident 6,201 39 6,822 62 4,699 06 4.456 06 Preferred Accident, 591 03 - ■ - Prudential Casualty, .... - - 140 94 341 33 Royal Indemnity 6,904 31 14,221 35 12,320 51 10,747 95 Standard Accident, 8,555 07 7,191 64 6,501 85 6,039 50 Travelers 41,003 41 109,810 98 110,526 20 91,677 81 United States Casualty, .... 6,933 03 7,276 95 4,701 59 6,768 47 United States Fidelity and Guaranty, . 19,017 36 16,448 66 13,242 96 12,669 07 Zurich General, - 1,495 50 3,801 37 3,222 06 Totals $236,091 62 $361,468 09 $332,979 08 $367,388 30 American Mutual, $20,307 27 $49,345 50 $26,859 40 $28,293 00 Contractors Mutual, .... 11,209 34 17,955 10 27,134 51 25,701 36 Massachusetts Employees Ins. Ass'n, 38,227 84 103,968 75 87,893 34 71,716 08 Security Mutual - - 1,775 75 2,233 98 Totals $69,744 45 $171,269 35 $143,663 00 $127,944 42 Grand totals, $305,836 07 $532,737 44 $476,642 08 $495,332 72 1917.] SENATE — No. 370. 85 Commissions incurred, Massachusetts Business. COMPAST. 1912. 1913. 1914. 1915. i^tna $28,118 37 $35,680 65 $23,859 45 $25,301 17 American Fidelity 10,881 07 5,053 17 925 35 85 37 Casualty Company of America, 22,692 95 33,394 56 25,266 17 36,183 01 Employers Indemnity - - 458 00 1,085 55 Employers Liability, .... 190,145 77 187,319 47 144,569 19 141,342 46 FideKty and Casualty, .... 11,066 91 10,316 67 9,746 72 8,533 94 Fidelity and Deposit, .... 7,748 46 8,728 77 9,324 11 4,679 72 Frankfort General, 15,081 28 11,262 06 7,203 30 0,141 98 General Accident, 5,605 44 6,281 26 6,334 77 323 35 Globe Indemnity 5,997 13 9,238 54 9,302 64 7,898 23 Hartford Accident and Indemnity, - - 10,717 69 7,678 42 London Guarantee, 24,267 98 21,612 18 14,336 51 18,336 03 London and Lancashire - 1,475 13 1,477 70 328 02 Maryland Casualty, 17,887 91 15,963 46 8,656 64 9,820 89 Massachusetts Bonding, .... 3,958 14 10,125 18 17,293 37 21,802 22 New Amsterdam - - 761 14 2,028 39 New England Casualty 9,656 05 13,449 18 17,949 29 16,600 75 Ocean Accident 9,785 45 11,743 72 8,444 16 6,945 92 Preferred Accident 376 15 - - - Prudential Casualty, .... - - 438 73 170 20 Royal Indemnity, 20.045 85 15,843 42 15,335 73 13,422 93 Standard Accident, 4.901 36 2,005 44 3,707 06 6,712 67 Travelers 89,411 12 89,797 16 84,442 42 78,769 80 United States Casualty, .... 8,968 38 8,425 84 6,681 16 11,359 40 United States Fidelity and Guaranty, . 4,881 01 5,950 22 7,350 07 6,134 41 Zurich General, ~ . 3,406 27 7,331 47 6,180 55 Totals $491,476 78 $507,072 35 $441,912 84 $437,865 38 American Mutual, " - - - Contractors Mutual, .... - - - Massachusetts Employees Ins. Ass'n, - - - - Security Mutual, - - - - Totals - - - - Grand totals - - - - 86 COMPENSATION INSURANCE RATES. [Feb. Taxes incurred, Massachusetts Business. Company. 1912. 1913. 1914. 1915. ^tna $2,515 52 $5,918 02 $4,210 15 $4,517 43 American Fidelity 1,243 54 808 05 111 15 9 76 Casualty Company of America, 3,320 11 2,847 82 2,888 50 3,871 24 Employers Indemnity, .... - - - 371 65 Employers Liability, .... 21,730 94 21,407 93 17,144 39 16,211 99 Fidelity and Casualty, .... 1,264 79 1,362 24 1,151 64 867 40 Fidelity and Deposit 885 54 997 57 1,065 62 533 63 Frankfort General 1,723 57 1,344 65 827 20 703 12 General Accident, 640 41 718 06 644 58 185 30 Globe Indemnity 649 25 1,145 23 1,104 92 933 25 - 651 75 893 31 London Guarantee, 1,122 05 2,448 47 1,089 88 2,044 15 London and Lancashire - 31 48 249 15 34 45 Maryland Casualty, 2,044 33 2,690 84 1,279 26 1,473 14 Massachusetts Bonding - - - New Amsterdam - - 87 00 231 81 New England Casualty - - - Ocean Accident 1,118 62 1,442 14 1,081 48 912 54 Preferred Accident, 44 13 - - - Prudential Casualty, .... - - 50 14 —13 04 Royal Indemnity, 2,290 96 1,221 76 1,855 59 1,537 54 Standard Accident, .... 1,119 31 706 35 638 00 876 81 Travelers 11,545 94 14,188 45 13,400 79 12,735 47 United States Casualty, .... 1,320 08 —186 46 689 54 1,303 10 United States Fidelity and Guaranty, . - 1,230 18 1,425 00 1,136 57 Zurich General, - 389 29 837 88 706 35 Totals S54,579 09 $60,712 07 $53,083 61 $52,076 97 American Mutual, $7,252 60 $3,604 62 $4,184 96 $3,528 43 Contractors Mutual, .... - 2,068 10 888 49 1,815 37 Massachusetts Employees Ins. Ass'n, 7,392 56 9,866 28 9,182 99 774 82 Security Mutual - 1,885 12 1,160 52 Totals $14,645 16 $15,539 00 $16,141 56 57,279 14 Grand totals, $69,224 25 $76,251 07 $69,225 17 $59,297 21 1917.] SENATE — No. 370. 87 Investigation and Adjustment Expenses incurred, Massachusetts Business. Company. 1912. 1913. 1914. 1915. iDtna $182 22 S13.303 60 $10,097 32 $13,007 90 American Fidelity 404 44 8,435 62 148 96 2,791 25 Casualty Company of America, 5,133 00 11,479 00 10,443 20 6,395 11 Employers Indemnity, .... - - - 784 50 Emploj'ers Liability, .... 12,536 44 79,881 26 54,901 84 61,470 35 Fidelity and Casualty 2,680 15 9,935 93 9,213 99 9,402 49 Fidelity and Deposit 112 05 6,824 41 4,610 01 2,721 68 Frankfort General 1,998 33 8,016 23 6,157 82 5,236 04 General Accident, 45 00 1,963 35 10,676 22 1,331 56 Globe Indemnity 458 98 5,345 75 4,451 29 6.720 61 Hartford Accident and Indemnity, - - 3,688 71 1,113 31 London Guarantee 3,199 74 10,551 85 4,873 74 6,570 33 London and Lancashire, . . - 461 00 962 70 —183 88 Maryland Casualty, 495 84 7,191 18 —1,582 64 8,908 29 Massachusetts Bonding 7 40 287 11 13,201 15 15,067 10 New Amsterdam, - _ 181 53 1,710 61 New England Casualty, .... 1,036 12 6,390 43 4,556 81 8,625 02 Ocean Accident 282 62 5,384 33 4,504 66 5,433 85 Preferred Accident 47 85 - - — Prudential Casualty, .... - - 37 00 —9 00 Royal Indemnity 1,637 68 17,057 65 1,928 77 11.028 17 Standard Accident, 761 15 2,251 09 3,904 53 4,947 80 Travelers, 25,307 77 59,939 72 39,724 76 43,775 49 United States Casualty 72 00 5,787 84 3,374 42 7,416 72 United States Fidelity and Guaranty, . 893 89 941 75 1,575 75 2,076 66 Zurich General, 1,841 91 4,425 65 6,931 66 Totals $57,292 67 $263,271 01 $196,058 19 $233,641 38 American Mutual $5,719 51 $6,353 91 $23,115 02 $14,387 38 Contractors Mutual, .... 556 11 7.167 64 5,033 84 8,491 56 Massachusetts Employees Ins. Ass'n, 2,865 73 15,477 56 21,422 23 32,767 37 Security Mutual, - - 1,877 28 3.655 78 Totals $9,141 35 128,999 11 $51,448 37 $59,302 09 Grand totals • $66,434 02 $292,270 12 $247,506 56 $291,568 87 88 COMPENSATION INSURANCE RATES. [Feb. 1917. Inspection and Accident Prevention Expense incurred, Massachusetts Business. Company. 1912. 1913. 1 1914. 1 1915. ^tna, . . $1,760 87 $8,669 07 $7,271 67 $4,400 67 American Fidelity, ...'.. - - - - Casualty Company of America, 1,305 00 2,418 63 705 00 386 95 Employers Indemnity _ - - - Employers Liability, .... 1,412 52 6,833 41 8,717 96 5,249 86 Fidelity and Casualty, .... 965 00 500 00 985 79 1,071 IS Fidelity and Deposit, .... 350 00 550 00 273 14 8 55 Frankfort General 2,585 36 2,318 02 2,181 54 890 50 General Accident, 40 41 453 47 385 31 203 19 Globe Indemnity, 1,000 00 1,360 94 1,090 76 1,130 97 Hartford Accident and Indemnity, - - 92 92 515 44 London Guarantee, 1,411 89 1,957 14 1,311 39 1,042 77 London and Lancashire - - - - Maryland Casualty 408 75 3.765 84 4,342 14 1,748 90 Massachusetts Bonding, .... - 1,053 43 1,580 34 2,510 13 New Amsterdam, - - - - New England Casualty, . . . ■ . - 367 72 430 84 4,160 00 Ocean Accident 475 41 608 15 864 70 1,169 77 Preferred Accident, ..... - - - - Prudential Casualty - - 74 90 182 60 Royal Indemnity, 909 27 6,163 85 4,296 20 2,390 02 Standard Accident 895 24 482 64 473 50 698 21 Travelers, 11,601 48 27,060 93 16,421 87 14,243 06 United States Casualty, .... 2,002 63 2,768 16 2,685 71 3,102 86 United States Fidelity and Guaranty, . - - - - Zurich General, - 585 10 1,490 70 841 61 Totals, 527,123 83 $67,916 50 $55,676 38 $45,947 24 American Mutual $1,122 83 $3,408 79 $3,995 19 57,601 45 Contractors Mutual, .... 614 96 2,752 58 2,551 63 3,123 91 Massachusetts Employees Ins. Ass'n, 2,307 28 22,872 38 20,848 02 14,493 76 Security Mutual - - 600 00 1,014 57 Totals $4,045 07 $29,033 75 $27,994 84 $26,233 69 Grand totals $31,168 90 $96,950 25 883,671 22 $72,180 93 yr •'^.i?^?^ RETURN TO the circulation desk of any University of California Library or to the NORTHERN REGIONAL LIBRARY FACILITY BIdg. 400, Richmond Field Station University of California Richmond, CA 94804-4698 ALL BOOKS MAY BE RECALLED AFTER 7 DAYS 2-month loans may be renewed by calling (415)642-6753 1-year loans may be recharged by bringing books to NRLF Renewals and recharges may be made 4 days prior to due date DUE AS STAMPED BELOW ?'^j