LIBRARY 
 
 OF THE 
 
 UNIVERSITY OF CALIFORNIA. 
 
 Class 
 
PRINCIPLES 
 
 OF 
 
 INSURANCE LEGISLATION 
 
 BY 
 
 MILES MENANDER DAWSON 
 
 NEW YORK 
 
 THE HUMBOLDT LIBRARY 
 64 FIFTH AVENUE 
 
COPYRIGHTED, 1895 
 
 BY 
 MILES MENANDER DAWSON. 
 
CONTENTS. 
 
 PAGE 
 
 The Nature and Scope of Insurance 3. 
 
 General Enabling Statutes 9 
 
 Restrictive Statutes 17- 
 
 Restrictive Statutes- 
 Life Insurance. ... . 21 
 
 Other Personal Insurance 27 
 
 Liability Insurance 31 
 
 Fire and other Property Insurance 37 
 
 Credit, Surety, Burglary, Title and Mortgage 
 
 Insurances 43 
 
 Regulations 49 
 
 Regulation Statutes 
 
 Life Insurance. 1 55 
 
 II..... 61 
 
 in ;. 6 7 
 
 IV 7I 
 
 V 77 
 
 VI 81 
 
 VII 85 
 
 VIII 89 
 
 IX 93 
 
 Other Personal Insurance 99 
 
 Fire Insurance I , 103 
 
 II 109 
 
 III ' 113 
 
 IV.. II9 
 
 Liability Insurance ; 123 
 
 State Supervision I2 g 
 
 State Insurance. , , , , ,,,,,., , 135 
 
 11382 
 
THE NATURE AND SCOPE OF INSURANCE. 
 
 ( Insurance is the equalization of fortune. The defini- 
 tion may sound like a mere commonplace ; but it is no 
 such thing) The line of demarcation is just there, (insur- 
 ance prevents those inequalities, which are induced by 
 misfortunes to individuals, by spreading the loss over u 
 larger surface, by dividing it among a larger number ; 
 by this very means also, the inequalities, caused by the 
 good fortune of individuals, are sensibly reduced by their 
 contributions to cover the common loss, by their premium 
 payments. The kinship between insurance and gam- 
 bling is close ; they both deal with the science of average, 
 applied to chance. And so far as that science is con- 
 cerned, aside from the hazard arising from men's con- 
 scious efforts to gain which is known as the moral hazard, 
 there is no distinction whether a company bets you that 
 your house will not burn or that your neighbor's house 
 will hot burn. 
 
 But there is a difference, nevertheless, between those 
 two transactions. The difference is that in the former 
 case you have nothing to gain ; you are merely striving 
 to avoid loss or, more accurately, to share the risk of loss, 
 common to such property. In the latter case, on the 
 contrary, you will not only lose if the house of your 
 neighbor does not burn, but you will also gain if his 
 
4 THE NATURE AND SCOPE OF INSURANCE. 
 
 house does burn. The latter transaction is, therefore, 
 pure gambling, undertaken only for purposes of gain 
 without giving an equivalent ; its tendency would be to 
 increase the inequalities of men's conditions, to magnify 
 instead of modify the inequalities imposed by the chances 
 of nature and society. The former transaction is, instead, 
 pure insurance, undertaken only for the purpose of escap- 
 ing instead of incurring a hazard ; its tendency is to 
 minimize the invidious inequalities which mere chance 
 and not desert occasions. And beneath all this, at the 
 very bottom of economics and sociology, lies the distinc- 
 tion of public policy, the distinction between that which 
 makes men foes preying upon one another and that 
 which makes them allies, co-operating with each other, 
 between competitive isolation and solidarity.) 
 (The very first office of insurance legislation, then, 
 should be to make this distinction clearly. The basis 
 upon which the distinction must be predicated, is that of 
 insurable interest, of indemnity.) It is the business of the 
 State to permit and to encourage the co-operation of its 
 citizens in applying the laws of average to those chances 
 which they are by exigencies already existing and beyond 
 their control compelled to take, for the purpose of dis- 
 tributing the loss. It is the business of the State to dis- 
 courage and prohibit all enterprises which apply the laws 
 of average to create chances and by hopes of great gains 
 tempt inconsiderate persons to increase the necessary 
 hazards of life. Broadly and generally speaking, all 
 honestly managed institutions of the former sort should 
 be fostered by legislation ; and, without exception, every 
 concern of the latter stripe should be put down. 
 
 We are yet in the infancy of insurance which is, more 
 than all other modern inventions, the child of our modern 
 civilization. Its development is both toward more perfect 
 form in fields already occupied and toward increased 
 
THE NATURE AND SCOPE OF INSURANCE. 5 
 
 comprehensiveness, covering ever fresh fields. It is, 
 itself, a practical outgrowth of a doctrine which was for 
 a long time relegated to sentimental moralizing and 
 deemed utterly impracticable. That doctrine took its 
 most simple and perfect form in the command : " Bear 
 ye one another's burdens." For centuries, this was inter- 
 preted by persons to mean : " Bear ye others' burdens," 
 and did not convey to the mind the idea of a lighter but, 
 instead, the idea of a heavier burden. It remained for 
 our hard-headed age to evolve from the true meaning of 
 the command a system which knits men together for 
 purposes of mutual burden-bearing to a degree which was 
 absolutely unknown in the days of mere sentimentalizing 
 about brotherhood. At the same time the autonomy of 
 the individual is preserved and, indeed, protected ; the 
 sense of security makes him more a man and more capable 
 of independent labor. The scope of bearing others' burdens 
 instead of sharing all burdens, is sensibly lessened and 
 almost the complete abolition of the humiliation of 
 charity may one day be expected from the extension of 
 the principles of insurance into practice in all fields where 
 there is loss and the risk of loss which overwhelms the 
 individual. 
 
 The fields already occupied or being occupied fall natu- 
 rally and easily into general classes or divisions. First, 
 among these, is insurance against those misfortunes 
 which directly touch the person in his own body or occa- 
 sion loss to another person because of his death. In this 
 group would be included all forms of personal accident, 
 health, old age and other permanent disability and life 
 insurance. For convenience's sake and because it accur- 
 ately designates the class, let this group be known as 
 Personal Insurance. 
 
 Next in order of nearness to the individual is insurance 
 against loss of property possessed by him, through mis- 
 
6 THE NATURE AND SCOPE OF INSURANCE. 
 
 fortunes which destroy it or impair its value. This would 
 include fire, lightning, windstorm, hail, marine, plate- 
 glass, and other like forms of insurance. This may be 
 named, with less .distinguishing accuracy, however, 
 Property Insurance. 
 
 Another sort of hazards now covered by insurance con- 
 sist in liabilities for injuries occasioned others by the 
 negligence, tort or even crime of the insured. All forms 
 of employers' liability, public liability, elevator and 
 steam boiler insurance so far as they cover injuries to 
 persons, and the like, come in this category. It may be 
 appropriately named Liability Insurance. 
 
 Insurance of property-owners against losses or injuries 
 because of the negligence, insolvency or even crime of 
 others forms yet another division. Included in it are 
 surety, credit, burglary and other similar forms of insur- 
 ance. The selection of a name for this group is most 
 difficult, as it is well toward the border of insurance 
 development. Perhaps, the English legal term "Tort," 
 which means a wrong, might be applied to it. 
 
 Beyond this class and yet later in development are 
 several divisions, as yet in a merely formative state and 
 not clearly recognized in all cases to be of the nature of 
 insurance. Among these are title insurance and the 
 peculiar application of the rules of average in debenture 
 companies and building and loan associations, the kin- 
 ship of which to insurance has not been clearly recognized 
 and set forth. 
 
 In a code of insurance laws, each of these classes and 
 in fact each branch of insurance in each class should be 
 provided with ample provisions for its proper growth and 
 development into the most serviceable instrument possi- 
 ble. First in the order of necessity is permissive or 
 enabling legislation which makes possible, or at least 
 lawful, the organization of companies or societies to carry 
 
THE NATURE AND SCOPE OF INSURANCE. 7 
 
 on the business of insurance. The absence of such legisla- 
 tion, and yet more often the presence of prohibitive legis- 
 lation, have been effectual preventions of advance in 
 many directions where advance was called for. Legisla- 
 tion of this nature should be carefully planned with a 
 view to the possible requirements of the future. It is the 
 foundation upon -which the house is to be built and it 
 should be solid and true to correct principles. Unless it 
 is broadly conceived and intendecj. for the public good, it 
 is likely to be a curse instead of a blessing. Rarely has 
 such legislation been dictated by existing institutions in 
 their special interest that it has not proved an injury to 
 the public, who were not so well served, because of laws 
 supposed to be for their benefit. 
 
 The public have usually retaliated, as is but natural, 
 by restrictive legislation. They recognize the predatory 
 instincts of existing and often autocratic companies and 
 they seek to hold them within proper bounds. No field 
 of legislation is so tempting to the new lawmaker as that 
 of restriction ; the "thou shalt not" is the novice's con- 
 ception of law. Consequently all insurance companies 
 and societies in this country groan under a grievous 
 burden of restrictions, never the same in any two States. 
 The fact that companies protest warmly against these 
 restrictions is commonly considered excellent proof that 
 the restrictions are just what they ought to be, so unfavor- 
 able an opinion have the people of the public spirit of 
 insurance managers. Notwithstanding the popularity of 
 this view, it is true that in no branch of legislation would 
 it be wiser to stay the hand than in restrictions upon 
 insurance companies. There are but two things which 
 justify interference with the right of free contract in 
 insurance matters. These are, first, to make sure that 1 
 the element of indemnity is never lost sight of and that 
 gambling is not part of the transaction, and, second, that 
 
8 THE NATURE AND SCOPE OP INSURANCE. 
 
 nothing in the conduct of the business is against public 
 policy. It is also proper for the State to require that all 
 contracts of insurance follow a certain order in their pro- 
 visions and stipulate all conditions in clear type in their 
 natural sequence. When this is done and proper restric- 
 tions are observed, there is no excuse for further inter- 
 ference. 
 
 Regulative legislation, though closely akin to restrictive, 
 is different in the important particular that its provisions 
 are guiding rather than restraining. Included in this 
 very important class of laws are statutes covering the 
 government of companies by the persons interested, the 
 manner in which funds may be invested and the purposes 
 for which they may be disbursed, the means of testing 
 solvency, the subject of public reports and various similar 
 subjects. The things to be desired in this sort of legisla- 
 tion are that it should devise means by which the views 
 of the majority of the persons interested should be effective 
 in the actual management, that it should grant the 
 utmost opportunity for choice in the matter of invest- 
 ments compatible with safety, that the standards of 
 solvency should be such that no really solvent institution 
 would be adjudged impaired and that the fullest publicity 
 be given to all the affairs of the institutions, holding back 
 nothing which the public has a right or a reason to 
 know. 
 
 It will be observed that the field of insurance legislation 
 is a very broad one. It would require a good volume 
 to cover the subject of legislation for one sort of insur- 
 ance in a thorough and exhaustive manner. No such a 
 task will be undertaken here. All that can be hoped for 
 in a work of this character is a plain and concise indica- 
 tion of the fundamental principles from which all legisla- 
 tion should proceed. 
 
GENERAL ENABLING STATUTES. 
 
 Without the enactment of any laws, whatever, the 
 right of making insurances, in the absence of prohibitive 
 statutes, belongs to individuals or partnerships, just as 
 does the right to conduct any other business which is not 
 in conflict with public policy or in controversion of law. 
 It is a fact, well known to all students of the history of 
 insurance, that, in the beginning, all insurances were 
 undertaken underwritten, the old expression was by 
 individuals. These individuals must have been of a very 
 enterprising, speculative, daring character, much disposed 
 to take chances ; for, without anything like reliable 
 information as to the nature and proportions of the 
 hazard they were encountering, they bet freely large 
 sums against very small ones, their only advantage being 
 tbat they were also stakeholders. The fact that men 
 could be found with so adventurous temperaments, may 
 seem to us significant ; insurance had its origin in the 
 gambling instinct, for these men acted through pure love 
 of hazard and without insuring enough persons to make 
 anything like an average. In fact, so hazy were their 
 ideas of the real nature of what they were doing, that to 
 assume more insurances was thought to be increasing the 
 risk instead of diminishing it by enhancing the proba- 
 bility of securing an average. It is, therefore, true that 
 
 9 
 
to GENERAL ENABLING STATUTES. 
 
 the business of insurance was originally undertaken on 
 the part of the insurers through a mere love of risky 
 adventures. So far as they were concerned, it was as 
 purely gambling as was any other game of chance ; and 
 as it was then carried on, its legality and propriety from 
 the standpoint of the insurer were just as questionable as 
 were the legality and propriety of roulette. 
 
 But consideration of the side of the insured puts an 
 entirely different face upon the transaction. When 
 persons gamble with dice, for instance, what one wins, 
 another losses ; each would lose nothing and each would 
 win nothing if they did not play. On the contrary, when 
 one man insures another against the loss of property, it 
 does not follow that what one loses the other gains ; the 
 gain by the insured could in any case be but relative 
 that is, relative to the greater loss he would have suffered, 
 had he been without insurance. Had there been no 
 insurance, he would still have been compelled to run that 
 risk ; what he has done by insuring, is not to create a 
 chance for gain, but avoid a chance of loss. In other 
 words, he has made use of betting, to "hedge," as our 
 friends of the green cloth would call it. Since the wheat 
 market has become the plaything of speculators, honest 
 dealers in breadstuff's, such as millers, are compelled to 
 make use of the privilege of " selling short " to avoid a fall 
 in the market before the goods which they buy can be 
 prepared for the market ; this not for the purpose of 
 speculating, but for the purpose of preventing their pur- 
 chase being a speculation and their legitimate profits 
 being swept out by a mere turn of the market. They 
 insure their purchases by selling short an equal amount. 
 This is also of the nature of a "hedge;" the only real 
 objection to it on corn exchanges and in insurance as 
 well, is that, so far as the other party to the contract is 
 concerned, it is gambling pure and simple. 
 
GENERAL ENABLING STATUTES. 11 
 
 To explain how it might be rescued from that difficulty 
 in the matter of grain deals is not the purpose of this 
 paper ; so far as insurance is concerned, there is but one 
 way to relieve the transaction of this gambling character. 
 That is, to change hazard into approximate certainty by 
 so increasing the number of risks as to make the losses 
 form an average upon the regularity of which it is possi- 
 ble to rely. Whatever may have been the propriety of 
 questioning the right and wrong of individual insurances 
 in the days when men assumed but few such risks, there 
 is no occasion for questioning the unmixed benefit which 
 flows from insurance given by firms or companies which 
 have so extended their business that it is no longer a 
 matter of risk at all. 
 
 Insurance needed just that growth and development to 
 make it thoroughly practical. And it was this necessity 
 for a large number of risks as well as for permanency on 
 the part of the insurer, which made it advisable to trans- 
 fer the business of insurance from individuals to compa- 
 nies. This came about gradually ; in fact, the limited- 
 liability stock company system did not really flourish in 
 any line of business until within the present century. 
 Even now in most nations, the power to act as a body 
 corporate is not given except by special act of the sover- 
 eign power. This was true, also, in this country until 
 we found that any charter could be bought ; and so 
 helped to clear our legislative halls from corruption by 
 removing the temptation through the enactment of 
 general corporation laws. But it was a long time before 
 insurance developed to the point where the absence of 
 such laws was an obstacle. When it passed beyond the 
 stage of mere occasional betting between individuals and 
 became a transaction which every prudent man thought 
 wise, it was still relegated to individuals who drew 
 together in London, about Lloyds coffee house and 
 
la GENERAL ENABLING STATUTES. 
 
 underwrote, each as much of the risk as he saw fit. 
 Neither of these, however, became surety for the others ; 
 each was responsible for his own engagement and no 
 more. 
 
 It was inevitable that such a system should give way 
 to partnership and stock-companies. Indeed, the organi- 
 zation into companies to carry on the business of insur- 
 ance antedated the general formation of limited-liability 
 companies. The earlier insurance corporations were, in 
 effect, partnerships and with unlimited liability. One of 
 the oldest London companies, the Sun Fire Office, kept 
 that form until within this decade, refusing to make its 
 affairs public and in every way conducting itself as a 
 mere association. But the need for large capital, the 
 desirability of publicly attesting their strength and solv- 
 ency and the consideration that an insurance company 
 should not pass out of existence like an individual, all 
 conspired to make the organization of companies the 
 natural thing to do. The undertaking of the insurance 
 of lives and annuities made this more requisite ; for it 
 was ridiculous to make an insurance of lives depend 
 upon a life which might be less secure than any of them. 
 And, though the insurance might be a charge against 
 the insurer's estate, it would keep the affairs of such 
 estates in a frightfulty mixed state. The process of pro- 
 bate has ever been slow enough and complicated enough 
 without that. 
 
 s Two forms of companies can be used for the purpose of 
 effecting insurances. The first and simplest to consider 
 is that of a company for private profit, composed of per- 
 sons who engage in the insurance business as did indi- 
 vidual insurers aforetime, except that they seek to avoid 
 the hazard and uncertainty of individual underwriting 
 by covering a much larger number of risks. This is the 
 common form of stock company with which we are 
 
GENERAL ENABLING STATUTES. 13 
 
 acquainted. The other form is that of a mutual associa- 
 tion in which the insurers are also the insured. It will 
 be observed that the safety of the transaction of insur- 
 ance depends upon the sufficiency of the premium 
 charged and the ability to obtain and retain risks enough 
 to preserve an average. When these things are accom- 
 plished, the presence of capital adds but little to the 
 safety ; indeed, it is principally valuable as an earnest 
 that there will be good and safe management, because 
 the managers have much at stake. The number of risks, 
 sufficient to secure an average, is supplied by the insured; 
 it follows that if a sufficient number of these will co- 
 operate, pay adequate premiums and secure for them- 
 selves economical and efficient management, they can 
 perform the function of insurance as safely as can a stock 
 company and save at least the profits which the stock- 
 capital would absorb. These mutual associations may be 
 without limit of liability, but the usual practice is to 
 limit the liability of the members to the premiums paid 
 or to an additional sum, specifically contracted for. 
 
 It is the office of enabling statutes to grant the power 
 to organize such companies, both stock and mutual. 
 While the right to carry on the business as an individual, 
 a firm or a syndicate, is, in the absence of prohibitive 
 statutes, granted to every person, it requires special legis- 
 lation to give to the same individuals corporate powers 
 to carry on the business as a company. The usual course 
 of the legislatures has been to enact such laws, just as 
 occasion called them forth. Thus a law permitting the 
 organization of fire insurance companies would be 
 enacted when there was a demand for such legislation of 
 which the legislature was bound to take notice. Gener- 
 ally, such laws have been granted grudgingly or accord- 
 ing to the dictation of persons who were interested in 
 their passage. The consequence is that every new devel- 
 
14 GENERAL ENABLING STATUTES. 
 
 opment of the principle of insurance, of the application 
 of the laws of average to the reduction of hazard to the 
 individual, has had to fight its way without warrant of 
 law until big enough and popular enough to secure the 
 enactment of. laws which permit it to serve the public. 
 This is the history of all such movements. 
 
 All of which suggests that enabling statutes are imper- 
 atively demanded which will place the whole business 
 upon a broader foundation and will give free play to the 
 inventive geniuses of insurance to devise and put into 
 operation new schemes for the protection of individuals 
 from hazards which they are, by the nature of things 
 and the constitution of modern society, compelled to 
 take. These statutes should authorize the organization 
 of companies and associations for the purpose of insuring 
 against any injury or loss, so long as not against public 
 policy. There is no occasion for special enabling statutes 
 for each branch of insurance ; indeed, the special statutes 
 by their exclusive character often effectually prevent the 
 development of insurance in directions which it would 
 otherwise take. In instance, observe the recent legisla- 
 tion in many States, denying to fraternal life insurance 
 societies the right to carry on a sick benefit business 
 other than in local lodges. Perhaps, no branch of the 
 work of these organizations promised to confer so great a 
 benefit upon the people as the very thing which was thus 
 cut off through the influence of certain of the older socie- 
 ties which had no such plan. Such might, with greater 
 accuracy, be called disabling legislation. 
 
 One objection to the plan of having one general ena- 
 bling statute to cover the whole field of insurance enter- 
 prises, is that the result would be that one company 
 would endeavor to cover too large a field. In the minds 
 of many persons, there is a grave doubt of the wisdom 
 of undertaking more than one form of insurance in one 
 
GENERAL ENABLING STATUTES. 15 
 
 company. There is some reason for this opinion, no 
 question ; though among the most successful and reliable 
 insurance companies in the world are those which cover 
 branches of insurance so widely divergent in character 
 as life and annuity on one hand and fire and marine on 
 the other. The fact is, however, that dangers of compa- 
 nies undertaking too many lines of insurance belong 
 principally to the formative stages of the business. The 
 evils are also not of a very formidable sort and consist 
 for the most part in inefficiency of management and 
 want of enterprise, arising from the divided attention. 
 But the evils of refusing to companies the privilege of 
 making those combinations which wisdom approves, are 
 much more serious. The wonderful development of 
 several entirely new branches of insurance by the Fidel- 
 ity & Casualty Co., of New York, is an evidence of the 
 gains to be realized by permitting a wise freedom in this 
 regard ; and it is not to the credit of our solons that this 
 company had to fight every inch of the way against 
 adverse laws and even now cannot exercise all its powers 
 in every State. The only thing that saved it anyhow, 
 was the fortunate word "Casualty," which really 
 includes everything that could be insured against and 
 has been construed to cover practically all forms of insur- 
 ance not already accurately named. The benefits to be 
 derived from the free combination of all forms of per- 
 sonal insurance, such as life, loss of member, temporary 
 disability, permanent disability and old age, can hardly 
 be over-estimated. Yet it is doubtful whether a charter 
 could be to-day procured for a company to deal in this 
 combination ; and it is sure that any such company 
 could not obtain admission into a half-dozen States. The 
 law, in this and all other respects, should permit what- 
 ever is not clearly against the interests of society, against 
 public policy. The permission should not be grudging 
 
16 GENERAL ENABLING STATUTES. 
 
 and limited, but free and encouraging ; because the 
 whole institution of insurance is in the widest sense 
 beneficial. A general statute is needed permitting the 
 organization of both joint -stock and limited-liability 
 mutual companies, for the transaction of any insurance 
 against loss through the application of the principles of 
 average ; the only restriction which public policy sug- 
 gests, is that of insurable interest, forbidding the promis- 
 ing to pay any sum to any person upon an event which 
 does not occasion him a loss at least equal to the sum 
 paid. Such a provision will make it certain that the 
 contract is never one to increase hazards, but always one 
 to diminish and modify them which insures that the 
 transactions will be beneficial and not deleterious to 
 society. 
 
RESTRICTIVE STATUTES. 
 
 The novice's conception of law is expressed in the 
 command: "Thou shalt not !" It reminds one of the 
 doctrine of original sin and the Calvinistic theology, 
 which bristles with prohibitions. According to that con- 
 ception, all things are evil and need to be jealously 
 restrained lest they run wild with mischief. It is the 
 natural creed of the simple, the untutored, the timorous. 
 Almost all the bills which inexperienced legislators intro- 
 duce or advocate are of this sort. 
 
 Enabling statutes should discount the necessity of 
 much of such legislation by broadly, but accurately, 
 designating the beneficial objects to be attained and 
 granting just the powers required to be attained and 
 no more. Such legislation, when intelligently drawn, 
 should so clearly indicate the whole course of action to 
 be pursued, so firmly define the principles on which the 
 work must proceed, that misconception, and consequent 
 abuse of powers, would be nearly if not quite impossible. 
 Equally impossible would it then be for frauds to con- 
 ceal themselves beneath the more or less ambiguous 
 terms of the law. To this end, the distinction made 
 should be vital and fundamental, winnowing the chaff 
 from the v wheat. It is not necessary that the distinctions 
 go too much into detail ; details confiuse and often defeat 
 
 17 
 
18 RESTRICTIVE STATUTES. 
 
 the purposes of enabling Acts. If such laws are clear, 
 definite and comprehensive, restraining statutes will be 
 found to be of minor importance. 
 
 The principal office, then, of restrictive legislation is to 
 supply, by patching, the deficiencies of enabling laws. 
 It will be found that where laws of the latter sort are 
 involved, ambiguous and uncertain in their provisions, 
 there has been a great popular demand for restraining 
 measures to prevent a wanton misuse of powers. Thus 
 by accretion from new bills, amendments and court deci- 
 sions the mass becomes greater and greater, and, com- 
 monly, confusion is the more confounded. The more or 
 less inharmonious and conflicting provisions act as so 
 many traps for the unwary and loop-holes for the design- 
 ing. The multiplicity of demands is also only suited 
 to present conditions and forms of business, and every 
 new and valuable invention has to work its way through 
 a very maze of difficulties. The imposition of restrictive 
 additions to faulty legislation is like poulticing a blood 
 disorder ; what is needed is a radical cure. 
 
 Yet, when the best possible, in the way of broad enab- 
 ling laws, has been accomplished, there is still room for 
 many restraining statutes. Each form of application of 
 the fundamental laws brings with it a train of incidental 
 possibilities of evil, which cannot and should not be pro- 
 vided against in the fundamental laws themselves. It is 
 a general principle of law, that a corporation has all the 
 powers definitely granted to it, and also all powers neces- 
 sary for the accomplishment of the object for which it 
 was incorporated. In such matters there is evidently 
 reason for great latitude, which however, may be abused. 
 It is to provide against such abuse that restrictive laws 
 are mainly desirable. For instance, if there were a gen- 
 eral enabling statute for the organization of insurance 
 corporations of all sorts, the law merely specifying the 
 
RESTRICTIVE STATUTES. 
 
 uature of insurance, the application of this law to 
 mutual companies, to personal, property and other forms 
 of insurance would call for carefully considered restrain- 
 ing statutes, fitted to the peculiar character of each 
 
 > In the matter of general restrictions, applicable to all 
 forms of insurance, certain broad provisions are indi- 
 cated. The nature of insurance makes its transactions 
 peculiarly subject to the danger of crossing the line 
 into the realm of mere gambling. It is but a step 
 from "betting to hedge" to "betting to win;" and the 
 step may be very easily and even unconsciously taken. 
 A familiar mode of converting an insurance into a 
 gambling transaction is by making the same in favor 
 of a person who is not financially interested to the 
 extent of losing upon the occurrence of the event 
 insured against an amount at least equal to the sum 
 insured. This is want of insurable interest or at least 
 of sufficient insurable interest, and is a danger common 
 though in varying degree, to all insurances. It may 
 well be provided against by a general restraining 
 statute which may in turn be modified or defined 
 when necessary by special statutes covering special 
 forms of insurance. 
 
 Another general restriction which might be desirable 
 is a prohibition against engaging in business other 
 than insurance or in forms of insurance which are 
 conflicting in nature or, possibly, in forms of insurance 
 which have no necessary relation to each other. The 
 wisdom of the last inhibition is indicated by the fact 
 that the management of a corporation should be 
 homogeneous and united, which can scarcely be the 
 case when businesses which are widely diverse in 
 nature are undertaken. Moreover, the objection of too 
 great concentration lies ; though care should be taken 
 
So RESTRICTIVE STATUTES. 
 
 in this connection not to embarrass combinations which 
 might be of the greatest utility to the public. 
 
 Another general restriction should be that, with cer- 
 tain exceptions, which may be taken up in detail 
 hereafter, no person should be insured against injuries 
 which are self-inflicted or against pains and penalties 
 for crimes imposed by the sovereign power. Whether, 
 pains and penalties for torts which are private wrongs 
 almost amounting to crimes, ought to be covered by 
 insurance remains also to be considered ; but the ques- 
 tion will come up in a more concrete form hereafter in 
 this series. 
 
 Possibly another prohibition should lie against volun- 
 tary payment or compromise of fraudulent claims on 
 the ground that to encourage such frauds in a matter 
 relating to the destruction of property or lives is 
 especially dangerous to the well-being of the State. 
 Witness, for instance, the tremendously increased fire 
 waste in this country because, not of careless adjust- 
 ments, but of inadequate inquiry into the cause of fires 
 and the disposition to compromise rather than fight. 
 Witness, also, the epidemic of child-murder in the 
 crowded tenement districts of England, caused by the 
 bait of industrial insurance as there conducted. But 
 with the exceptions of these general provisions, restric- 
 tive laws relative to insurance must needs be partial in 
 their application, and even the more general prohibi- 
 tions require much modification to suit some cases. 
 
RESTRICTIVE STATUTES-LIFE INSURANCE. 
 
 The laws governing a life insurance company should 
 be such as would enable it to do everything proper to 
 its office in society, and to restrict it from doing any- 
 thing which would interfere with the performance 
 of its proper function. That office or function is to 
 cover from loss because, of contingencies pertaining 
 to living or dying. These contingencies ^are of just 
 two sorts. There is the hazard of dying during the pro- 
 ductive years of life, and the hazard of living beyond the 
 productive years of life. This may seem like assuming 
 that to live beyond the age when productive labor is 
 possible is of itself a misfortune, to speak of that as a 
 hazard to be insured against ; and, indeed, there may be 
 much reason to assume this, even when old age is unac- 
 companied by poverty. But the only view of hazard on 
 insurance is the financial, and what is meant by a 
 hazard is always the possibility of financial loss when 
 the word is used in this connection. Death is not a con- 
 tingency, strictly speaking, but a certainty ; old age is 
 also a certainty subject to the one risk that death may 
 earlier intervene. The only uncertainty about either one 
 of these things is the time of its occurrence and it is that 
 uncertainty with which Kfe insurance has to deal. 
 
 The laws, then, should first of all enable a company to 
 
22 RESTRICTIVE STATUTES. LIFE INSURANCE. 
 
 insure against both of these hazards as completely as 
 possible. It should then restrict it from operations of 
 any nature whatsoever which might interfere with the 
 complete success of the insurance. On the general prin- 
 ciple that any class of operations which did not con- 
 tribute to the success of the insurance, stands in the way 
 of that success by deflecting the energies of the manage- 
 ment into another channel, it would be proper to restrict 
 the operations merely to these departments of insurance. 
 But such a course is not necessarily indicated and might 
 be inadvisable. An example, however, of the need of 
 just such restriction may be seen in the circumstance 
 that several of our life insurance companies are becoming 
 mere investment companies of a rather doubtful charac- 
 ter, that some of the companies have never played the 
 part of life insurance companies at all in consequence, 
 and that as a class all the companies were so misled by 
 the craze for investment that their failure to supply 
 insurance occasioned the formation of a number of crude 
 makeshift societies, to perform the function which the 
 regular companies failed to perform. 
 
 It is clear, upon reflection, first that from a purely 
 financial standpoint, the only contingency about death is 
 that it may take place during the years when a mail may 
 reasonably expect to be productive. Death, taking place 
 after the expiration of that period, is not a financial loss 
 and is, therefore, only in a very limited way a subject for 
 insurance. For the purposes of insurance against death 
 during the productive period, there is no absolute neces- 
 sity for any investment as it could be furnished on a 
 yearly renewable plan ; but there is also no reason why 
 investment of funds should not be employed to furnish 
 the convenience of level-premium or limited-premium 
 insurance. There are two contingencies relative to the 
 disabilities of old age, one of which is the possibility of 
 
RESTRICTIVE STATUTES.-LIFE INSURANCE. 23 
 
 prior death, and the other the time when one actually 
 becomes permanently disabled. If there were no contin- 
 gencies, there could be no insurance and provision for old 
 age would be a matter of mere saving and investment. 
 As it is, insurance against old age remains principally a 
 matter of investment, modified by the two contingencies. 
 It is at present the custom of all the regular companies 
 to consider only the contingency of prior death in deal- 
 ing with old age insurance which is offered in the form 
 of endowments or fixed annuities only. The co-opera- 
 tive societies are, in this matter also, in advance, several 
 of them having already incorporated into their contracts 
 provisions for total disability insurance although with 
 their usual rashness they have omitted taking the new 
 element into account in making their rates. There is 
 another office now performed by the life insurance com- 
 panies which, while its character as an insurance trans- 
 action is doubtful, is, perhaps, not inappropriate ; it is 
 the accumulation and equalization of estates for men 
 who have passed the productive period. All paid-up 
 insurance partakes of this character when the insured 
 passes the productive period of life and all premium- 
 paying insurance also partakes largely of this character 
 at the same age of the insured, owing to the heavy 
 reserves. The propriety as well as the wisdom of issuing 
 any sort of life insurance policies with payments extend- 
 ing beyond this period is exceedingly questionable ; but 
 the mere leaving of an estate to be accumulated and 
 equalized according to the average future lifetime of 
 men, now at the assured's age, does not seem objection- 
 able. 
 
 ^The acceptance of funds for investment for other pur- 
 poses than the foregoing seems clearly improper and 
 certainly exceeds the proper office of a life insurance 
 company. It really does not n/-Ster at all that the 
 
24 RESTRICTIVE STATUTES. LIFE INSURANCE. 
 
 chances of living or dying are mingled in the calcula- 
 tions and the transaction. The issuance of a pure ton- 
 tine or pure endowment policy, which is a promise to pay 
 money only in the event of survival, is not an insurance 
 contract unless there are special circumstances which 
 render the insured subject to a financial loss if he thus 
 survives. Even then unless the term were a very long 
 one, pure investment without modification by the risk of 
 survival would answer nearly as well. The combination 
 of this pure endowment policy with term insurance, so 
 that the principal sum is payable at death or upon sur- 
 vival, alters the nature of the contract so that it is not 
 utterly immoral ; but the immense augmentation of the 
 investment element is of itself an unmixed evil. Espe- 
 cially is this the case when, as has been the fact for many 
 years past, the stress of life insurance field-work is placed 
 upon the investment element as if an endowment or ton- 
 tine policy were to be desired for investment purposes 
 only. The diversion in this direction has also resulted iu 
 great increase of expenditure and in greater cost and 
 difficulty in procuring insurances while the same have 
 proven of very short duration when once procured. If 
 there were no other reason for abandoning this course, 
 the fact that such investments are tremendously handi- 
 capped should be sufficient. But there are other reasons 
 not only why companies should voluntarily retire from a 
 field of operations, so foreign to their proper functions 
 and for which they are so poorly suited, but also why in 
 the interests of the public they should be estopped from 
 continuing in this course. The most potent reason for 
 restraining them is that, so far from there being any real 
 development of the functions of life insurance among 
 regular companies during the prevalence of this craze, 
 there has been a retrogression accompanied by unex- 
 ampled extravagance, both of which were rendered 
 
RESTRICTIVE STATUTES.-LIFE INSURANCE. 25 
 
 possible and even necessary by the departure from fur- 
 nishing insurance suited to the requirements of the 
 people. The first and most important restraining statute/^ 
 in life insurance, then, is a law prohibiting the promisJ U 
 ing of any payment of money except upon the event of 
 the death or disability of the insured. Of course this 
 should not apply to the return of over-payments as divi- 
 dends. This might compel the revision of the present 
 deferred annuity plans but that would not be an evil in 
 any sense. 
 
 Perhaps to a less degree than in any other form of 
 insurance is there necessity for laws restraining the 
 issuance of policies in favor of persons who have no 
 interest of a financial character in the thing or person 
 insured. Especially is this true of insurance on adults 
 who pay premiums themselves and carry the insurance 
 for the protection of persons whom they wish to protect. 
 It is plain that in the most of such cases, the policy holder 
 is a better judge of his own obligations and responsibilities 
 than anybody else can possibly be. In this country, we 
 have many very foolish and very conflicting laws on this 
 subject and much litigation and even double payments 
 of the sum insured have been the result. In some States, 
 a different rule prevails to-day for the policies of regular 
 companies and those of fraternal societies. Other 
 countries have tried the experiment of leaving the matter 
 of insurable interest open and up to this time there have 
 been no evil results, one of the companies of such a 
 country showing the lowest mortality experience yet 
 recorded. At the same time, it seems proper to restrict 
 insurance by one person on the life of another, the bene- 
 ficiary paying the premiums, to issue only to those who 
 have a clear interest in the insured life ; and as it is 
 difficult to make sure that the beneficiary does not pay 
 the premiums in any given transaction, it is, perhaps, 
 
26 RESTRICTIVE STATUTES. LIFE INSURANCE. 
 
 better to enact a liberal law regarding insurable interest 
 which will work no injustice in either case. 
 
 There is also less reason to prohibit insurance against 
 loss because of self-imposed injuries than in other forms 
 of insurance, excepting where such injuries produce 
 disability and are thus for the advantage and profit of 
 the insured. The fact that the benefit of a life insurance 
 inures to a third person alters the nature of the transac- 
 tion and it is the act of the beneficiary which should be 
 held to vitiate the insurance. The proper attitude of the 
 State toward the question of the validity of life insurance 
 when the insured is executed for crime, is a matter for 
 careful consideration. The present practice of the courts 
 is to hold that such claims cannot be valid ; but the 
 companies have pretty generally held otherwise by 
 making their policies incontestable. Just what sort of 
 justice it may be considered for a State to deprive a family 
 of their support and then deny them the protection 
 against that very deprivation which they or he had paid 
 for, all as a measure of punishment for him and of pro- 
 tection to society, it is difficult to say. That such a 
 position should be taken, shows how monstrously unjust 
 and barbarous our penal system is which makes innocent 
 women and babes suffer the most severely for the crimes 
 in which they have no part. There would be good reason 
 for legislation prohibiting the issuance of policies, cover- 
 ing only the risk of death by self-inflicted injuries or by 
 execution ; there is no occasion for refusing to permit 
 general life insurance policies to cover both of them. 
 Indeed, in the matter of executions, the State would play 
 a more honorable part if it would itself compensate the 
 dependent family of an executed criminal 
 
RESTRICTIVE STATUTES. 
 
 OTHER PERSONAL INSURANCE. 
 
 Personal insurance, other than life, has for the most 
 part appeared in the forms of accident and illness insur- 
 ance. These two are closely allied, the latter, indeed, 
 practically including the former. The idea is to provide 
 indemnification for the loss of time, loss of efficiency 
 and the immediate expense, occasioned by either accident 
 or disease in the latter case and only external accident in 
 the former case. The indemnification also comes in at 
 least two forms, suited partially to the character of the 
 injury sustained ; the loss of time is indemnified by a 
 weekly stipend, not usually paid weekly, however, but 
 in one sum at the close of the disability ; the loss 
 of efficiency when insured against at all, is commonly 
 indemnified by the payment of a specified lump sum, as 
 at the loss of eyes or limbs. Permanent disability is 
 rarely if ever insured against by the same organizations 
 and in the same policy as temporary disability. Insur- 
 ance against permanent disability is at present principally 
 supplied by assessment life insurance societies. Indem- 
 nification against the extraordinary expenses attached to 
 treatment for illnesses or injuries is usually included in 
 the weekly payment and not considered separately. 
 There are however hospital companies and associations 
 
 27 
 
28 RESTRICTIVE STATUTES. 
 
 which cover this by au agreement to supply hospital 
 treatment free or in lieu of that to pay for home treatment 
 and nursing. 
 
 The only other form which personal insurance has 
 taken was the insurance against loss of situation, a 
 scheme evolved by one of the most ingenious casualty 
 insurance men but which was withdrawn after a very 
 short trial. The desirability of such insurance is manifest 
 but its practicability, except possibly through the agency 
 of gigantic labor organizations, is exceedingly dubious. 
 
 Perfect protection of the individual would call for an 
 insurance, indemnifying by a weekly or other periodical 
 payment against complete or partial disability, whether 
 temporary or permanent, the payment to continue so 
 long as the disability continues. The payment should be 
 larger during any period when medical attention, nurse 
 or hospital treatment is requisite, that being one of the 
 contingencies to be insured against. The payment of a 
 lump sum because of the supervention of permanent, 
 partial or complete disability is a crude form of indemni- 
 fication, adopted because the companies wished to 
 terminate their liability and besides had not the statis- 
 tics at hand to calculate accurately the reserve necessary 
 to sustain periodical payments. 
 
 The laws should foster the development of personal in- 
 surance along these lines, so far as possible. The close con- 
 nection between all of them and life insurance and espe- 
 cially the close connection with old age total disability 
 insurance, mentioned in the last paper, is at once patent 
 and suggests that the two classes of insurance conld be 
 supplied by one institution and, possibly, in one policy 
 better and more economically than by two or more institu- 
 tions and in two or more policies. This has a bearing on 
 restrictive legislation in this way, namely : the present 
 laws generally prevent these forms of insurance being 
 
OTHER PERSONAL INSURANCE. 29 
 
 undertaken by one institution, a restriction evidently 
 unwise and impolitic. In some States the formation of 
 a company to furnish illness or disability insurance is not 
 permitted under the law. There should certainly be no 
 restriction against the furnishing of all these forms of 
 insurance by one company. 
 
 Singularly enough, while this is not permitted, the 
 combination of the form of personal insurance, known as 
 individual accident with other forms of so-called casualty 
 insurance, including a variety of insurances of a most 
 diverse character, has been freely permitted. It is 
 possible that personal insurance has not lost by the com- 
 bination ; it would be difficult to prove that it tad. But 
 it would be very easy to prove that it has not gained, for 
 certainly no argument can be offered to establish that it 
 has. There is no necessary connection, for instance, 
 between individual casualty insurance and employers' 
 liability insurance. Indeed, it is possible for the same 
 harshness to creep into individual accident adjustments 
 which usually obtains in adjustments under the other 
 policies ; and that would be an evil. There is evidence 
 that the possibility of this evil is not imaginary ; a 
 certain company, otherwise unimpeachable, has in recent 
 years earned an unenviable reputation for harsh adjust- 
 ments. Since there is no apparent occasion for permitting 
 these unrelated branches of insurance to be written by 
 one company, if we were at the beginning, it might seem 
 wise to restrain them from so doing. But the fact that 
 such mixed businesses are already established and that 
 while there are no evidences of benefit from the combi- 
 nation, there are also no evidences of harm, militates 
 against the advisability of such restriction. Moreover, it 
 is probable that with the removal of the foolish restric- 
 tions now upon life insurance companies the personal 
 insurance which they could supply in combination would 
 
30 RESTRICTIVE STATUTES. 
 
 prove so much more attractive that its superiority would 
 render restrictive legislation unnecessary. 
 
 The fundamental principle, it cannot be too often 
 repeated, of all insurance is indemnity. The payment of 
 money to a person, who has suffered a loss less than the 
 money paid, is not proper for an insurance organization; 
 and is also against public policy as being likely to aggra- 
 vate the evils which insurance was intended to reduce, to 
 increase the general loss by the workings of the process 
 of distribution. The danger of over-insurance is familiar 
 to all who are engaged in this branch of the work and it 
 is hardly probable that laws to restrain companies from 
 it are needed or will be. A possible exception appears in 
 the now popular practice of doubling the amount of the 
 indemnity when injury occurs during a journey or voyage. 
 This may not be objectionable when confined to indem- 
 nity for death but is suspicious when covering also loss of 
 time or of efficiency or both. Persons familiar with the 
 matter will bear witness that one of the most frequent 
 forms of self-inflicted injuries is that which results in 
 making the person a cripple, through the loss of some 
 member which is of little service to the insured, to gain 
 the round lump sum paid by the company upon the 
 occurrence of such disability. 
 
LIABILITY INSURANCE. 
 
 When you pass beyond insuring a man against his 
 misfortune to insuring him against his own wrong, you 
 have taken a very serious step. A man is never liable 
 to others for injuries unless the same have been inflicted 
 through his own intent or negligence. As the dominion 
 of men over enterprises has been extended through the 
 limited liability company system, the sense of direct 
 responsibility has been greatly lessened, perhaps too 
 greatly. Men permit persons to be daily murdered 
 through neglect in the management of transportation 
 corporations, for instance, who would feel immediately 
 responsible if their coachmen with them in the carriages 
 were to run down pedestrians. The sense of responsi- 
 bility is weakened as the enterprise becomes of such 
 magnitude that it is impossible for the managers to 
 personally supervise. 
 
 Our laws were not devised to meet such cases ; such 
 cases were unknown when the English laws grew up 
 from the customs of the people. Such negligence on the 
 part of individuals whom the law recognized, was dealt 
 with almost as a crime and the injured could often recover 
 not merely proved damages but also penal damages. But 
 there is a sense of bewilderment when one attempts to 
 fix the responsibility in the case of a corporation. The 
 New York laws now provide that the corporation may 
 
 31 
 
3 LIABILITY INSURANCE. 
 
 be indicted, and the other day the trolley railroad of 
 Brooklyn was indicted for murdering people in the 
 streets. But means are not yet at hand to hold the 
 proper persons accountable. For instance, the laws are 
 so defective that motormen on that same system are 
 imprisoned by the city if they run their cars above a 
 certain speed and discharged by the company if they do 
 not do so. But the laws are not so constructed as to 
 make it possible to hold the company and its managers 
 accountable. The motorman is arrested j ust as if he were 
 an independent driver or the streets, when, as a matter 
 of fact, he is as much a mere cog in a wheel, a thing 
 without volition in this matter as is the motor or the car. 
 
 Undoubtedly, these liability losses are often grievous 
 and serious things, against which a prudent man would 
 do well to insure. Want of means often renders a man 
 or company amenable for negligence when there would 
 have been no neglect, had it been possible to avoid it. 
 What, for instance, is to be expected of a struggling rail- 
 road, burdened with debt and unable to earn running 
 expenses? Such a condition was responsible for the 
 dreadful Chatsworth disaster. 
 
 Landlords, who were then practically the sole employ- 
 ers of labor, were the influential men in forming earty 
 English law, which did not recognize the employe's right 
 to recover from his employer for injuries received while 
 in his service. Even now employers are in many places 
 not liable for injuries inflicted upon employes by the 
 neglect of their co-employes, though they are liable for 
 such injuries to any other person. This law is being 
 slowly changed throughout this country. 
 
 This liability for injuries to employes, being of compara- 
 tively recent origin, has been regarded as especially 
 oppressive by employers, and was the occasion of the 
 invention and popularization of liability insurance. Such 
 
LIABILITY INSURANCE. 33 
 
 injuries are common, altogether too common in many 
 branches of manufacture and especially in certain facto- 
 ries. When the establishment is large, there is a consider- 
 able drain every year because of claims for damages 
 through personal injuries to employes. These claims 
 vary in amount and are often very annoying because 
 connected with circumstances which reflect upon the 
 employer's care for the lives of his employes, and at the 
 same time appeal to his instincts of humanity. Some- 
 times, too, they are so considerable as to turn a profitable 
 year's business into a loss. In consequence of all these 
 things the employers of labor have so felt the need of 
 insurance of this sort that in this country it has become 
 incredibly popular in very few years. 
 
 Yet it is exceedingly doubtful whether such insurance 
 is legal at all or not, and yet more doubtful whether it 
 ought to be. It is a common complaint of public carriers 
 and others that they are continually raided by claimants 
 and that they cannot get justice before juries. Juries are 
 disposed to inflict penal damages, perhaps, whenever the 
 facts seem to warrant it. Yet no one who is acquainted 
 with the facts will have the hardihood to deny that the 
 sense of responsibility for negligence is weak enough at 
 present and the methods of adjusting such claims harsh 
 enough. No good end is served by encouraging a less 
 strict sense of responsibility by permitting the negligent 
 person or corporation to be shielded behind an insurance 
 company. 
 
 It is very difficult to bring the matter of the legality 
 of this sort of insurance to the test. The company and 
 the insured are both interested in avoiding its being 
 brought to a test. If there is any litigation, it is ostensi- 
 bly between the injured person and the insured, the 
 company conducting the defense but not appearing in its 
 proper person. This of itself is tainted with champerty 
 
34 LIABILITY INSURANCE. 
 
 and might be sufficient to outlaw the system. But only 
 in the rare case of the injured person recovering from the 
 insured, and the company then refusing to recognize its 
 liability, could the question of the legality of the insur- 
 ance be at issue in a suit brought by the insured to 
 recover. Then its illegality could only be pleaded by the 
 company, which is not likely to set up such a plea. Still, 
 if the issue should get squarely before any court of com- 
 petent jurisdiction, it seems probable that the insurance 
 would be declared 'illegal as in contravention of public 
 policy. 
 
 Such an issue might be made by the insurance officer 
 of a State, though it is likely that the companies would 
 avoid it if possible by withdrawing from that jurisdiction. 
 It is difficult to see in what other manner the issue could 
 be forced. 
 
 This form of insurance has been fully recognized as an 
 evil in Great Britain, where it originated. A campaign 
 against it was one of the features of the election which 
 brought Mr. Gladstone and the liberal party into power. 
 A prohibitive Act directed against it was one of the 
 measures which passed the House of Commons and was 
 rejected by the House of Lords, and which made " Down 
 with the Lords ! " an issue for all future campaigns. The 
 same difficulty about forcing an issue about its legality 
 under present laws would be experienced there as here. 
 In France, where the system is gaining a considerable 
 foothold, the distinguished statesman, M. Bourgeois, has 
 proposed a bill which will take the whole subject out of 
 the hands of the private companies and vest it in the State, 
 making the insurance and provision for injured employes 
 obligatory. In Germany the insurance is already obliga- 
 tory and definite, the State standing as sponsor for the 
 protection of the workingmen ; this system was the final 
 and crowning act of Bismarck's public service. 
 
LIABILITY INSURANCE. 35 
 
 This form of national liability insurance removes most 
 of the objections which lie against the system. These 
 objections are the weakening of the sense of responsibility 
 and the adoption of meaner methods of adjusting such 
 claims. In this latter particular, it is notorious that in 
 this country the English companies, though so offensive 
 in their domicile as to occasion repressive legislation, are 
 much less reprehensible than our own. Under any State 
 system yet proposed, the negligent employer would be 
 held more strictly accountable than at present when 
 without insurance, whenever negligence of a criminal 
 character actually existed. The insurance would afford 
 relief to the injured and protection beyond the relief, by 
 enforcing factory regulations so as to avoid danger of 
 injury. These would be benefits ; but the present system 
 tends to increase the hardships of the injured and to 
 make employers more careless. 
 
 It may be said on the other side that the companies 
 have an interest in making factory conditions better, and 
 that they will enforce this by discriminations in regard 
 to rates. Such discrimination has not yet put m an 
 appearance to any degree worth mentioning, and will 
 not ; for the reason that the sources of negligence are not 
 of a sort which appear to inspectors. Defects of con- 
 struction may be found and corrected, but otherwise the 
 situation is not improved. 
 
 Some of the evils of the system are modified by the 
 formation of a mutual company among the employes of 
 a large concern, to which mutual company the concern 
 pays a certain sum or a certain percentage of the amount 
 required in consideration of being relieved of further 
 responsibility. In other words, the employes take upon 
 themselves the responsibility, in consideration of a stipu- 
 lated sum. This system has prevailed to a considerable 
 extent in Great Britain, and has been adopted by several 
 
36 LIABILITY INSURANCE. 
 
 companies in this country. The "contracting out" was 
 one of the principal evils against which Gladstone's 
 memorable bill was directed. As a matter of fact, while 
 it should have been beneficent, this system has proven in 
 many cases the means of at once tyrannizing over 
 employes and escaping just responsibilities. 
 
 On the whole, so far as private corporations are con- 
 cerned, it is safe to say that the restrictive statutes needed 
 are such as would restrain all from engaging in liability 
 insurance. At the same time, measures might be taken 
 to avoid holding employers too strictly accountable for 
 injuries for which theii negligence is not really responsi- 
 ble and also to furnish immediate and adequate relief to 
 the toilers who are maimed in the process of commercial 
 production and distribution, without regard to liability. 
 These measures cannot be effectively taken by any less a 
 corporation than the entire community. 
 
FIRE AND OTHER PROPERTY INSURANCE. 
 
 The most popular form of insurance has been insur- 
 ance of property against fire. So firm a hold has this 
 form of insurance upon the public that, if solicitation 
 were entirely abolished by all the companies, it is prob- 
 able that the volume of insurance would not be very 
 greatly lessened, especially if convenient offices were 
 supplied at which insurance could be obtained. Busi- 
 ness men consider that it is a mere matter of business 
 prudence to carry an adequate insurance. Not to do so 
 argues want of sense. 
 
 Still there is little doubt that the manner of operating 
 the fire insurance business has tremendously increased the 
 fire hazard in this country as well as in other countries 
 where the same system is followed, and where the busi- 
 ness has attained much growth. The trouble is that in 
 this class of insurance you are directly dealing in values ; 
 the insurance is a bet against a value concerning which 
 the other bettor knows more than any other person can 
 possibly know. Moreover, values are queer things. 
 What, for instance, is the value of a stock of goods just 
 before a dealer fails in business? The whole ground for 
 estimating values is insecure and unstable ; and it is not 
 singular that the adjustment of these losses should be 
 one of the most delicate and difficult tasks. The root of 
 
 37 
 
38 FIRE AND OTHER PROPERTY INSURANCE. 
 
 the difficulty is that it is easily possible for a sudden turn 
 to make it more profitable for the insured to lose his 
 property and gain the insurance than to keep the 
 property. 
 
 It may as well be conceded that fire insurance compa- 
 nies have made no adequate provision to prevent this. 
 In no part of the country is the crime of incendiarism 
 so wide- spread and so generally successful as in New 
 York City, under the very noses of the underwriters. 
 There the system of adjusters for the insured has grown 
 into popularity to offset the* shrewdness of experts 
 employed by the companies and we have recently been 
 treated to the spectacle of a conspiracy which takes in 
 adjusters for both parties, factors and agents and even 
 policemen and firemen. And no effort worthy the name 
 is being made to shut out the possibility of this sort of 
 thing. The fact is that the companies are really, if not 
 openly, proceeding on the basis that it is their business 
 to gauge risks, not to prevent losses and that if they 
 make rates high enough to cover the losses and leave a 
 margin, they have done all that is required of them. 
 
 There is this element of truth in this proposition, that 
 it really is the business of the public to see that under- 
 writers do not so manage the fire insurance business that 
 the public interests are injured rather than benefited. 
 And if the public does not attend to the matter of pro- 
 tecting itself, it has but itself to blame. But it is also 
 true that those engaged in insurance are themselves con- 
 stituent parts of the public and that they are directly 
 interested in so conducting their business that it may 
 deserve public patronage. Moreover, they are more 
 familiar with the facts and the premises and should be 
 able to clearly demonstrate what is needed. 
 
 Doubtless more regulation than restriction is needed. 
 The arranging by law for a system of determining the 
 
FIRE AND OTHER PROPERTY INSURANCE. 39 
 
 causes of fires and possibly also of determining the value 
 of destroyed property, would do much to prevent the 
 wanton waste of wealth which now curses the land. 
 But something is needed which will curb over-insurance 
 at the fountainhead, by completely taking away the 
 incentive. This is done under the French law by abso- 
 lutely prohibiting one from recovering insurance for losses 
 because of fires which originate in the premises, occupied 
 by himself. This is believed to have been very effective, 
 especially in Paris and wherever the construction of 
 buildings is such that fires are not sure to burn other 
 buildings. But we would find it objectionable in two 
 particulars in this country. In the first place, insurance 
 on detached property would thus be completely shut out 
 and the value of insurance to all honest persons would 
 be greatly reduced. The cost of incendiarism now falls 
 upon the honest insured as does the burden of defaulted 
 bills upon buyers who pay their bills ; but the burden of 
 the uninsured hazard would be more unendurable to the 
 individual than the premium burden. Else would busi- 
 ness men now go without insurance. It is, after all, an 
 heroic method to prohibit insurance as in France like 
 whipping a whole school in order to be sure not to let the 
 culprit go unpunished ; the punishment is visited not 
 merely upon the innocent as well as the guilty, but not 
 upon the guilty at all. In the second place, in our nation 
 of frame rows it is by no means sure that a quick-witted 
 incendiary will always set fire to his own premises. 
 Such are not always ignorant that to put the torch to the 
 other end of the row will just as surely mature the 
 insurance and at the same time divert suspicion. A case 
 where that is believed to have been the case has come 
 under my notice. 
 
 But, while the denial of insurance in all cases where 
 the fire begins on one's own premises is too heroic a 
 
' 
 
 40 FIRE AND OTHER PROPERTY INSURANCE. 
 
 remedy, there seems no reason why the same should not 
 be applied in a modified form which may be either of 
 the following : The prohibition of the payment of more 
 than a certain percentage of the loss or the prohibition 
 of the payment of insurance when fires occur on one's 
 own premises and are not clearly explained by an acci- 
 dental cause. Perhaps, the latter of these devices might 
 be only an invitation for more perjury, but the former 
 should be effective. 
 
 A restriction of this general character is almost more 
 desirable in the case of steam boiler or elevator insurance 
 than in that of fire insurance, because of the danger to 
 human life which is always involved in elevator acci- 
 dents and boiler explosions. Some men are singularly 
 callous to the injuries which their sordidness or reckless- 
 ness inflict upon others ; but these are commonly the 
 very men who take the most care to avoid injury to 
 themselves. A dreadful instance of this callousness was 
 given publicity in Chicago some years ago. 
 
 Recent years have seen a renaissance of the Lloyds 
 system of individual underwriting. It is to be feared 
 that the system has been revived for the purpose of 
 escaping legal and moral obligations. The system was 
 originally discarded because it was discovered that 
 greater responsibility and certitude could be obtained 
 through joint stock companies. It is not improbable 
 that it has been given new life for the same reason, 
 namely : That greater responsibility and certitude is 
 attained through joint stock companies. In other lines 
 than insurance, the limited liability company system has 
 often enabled men to dodge their liabilities. Many large 
 fortunes are the result of such debt-dodging. But in 
 insurance, thanks to protective legislation and public 
 inspection, the contrary has been the case. One excep- 
 tion to this is where inspection does not inspect, as in the 
 
FIRE AND OTHER PROPERTY INSURANCE. 41 
 
 case of New York under the present administration. 
 But even the appearance of inspection does good, and 
 the departments of other States can offset this by mak- 
 ing examinations themselves whenever they bestir them- 
 selves. The Lloyds escape this inspection entirely. They 
 make use of the limited liability permission for special 
 partnerships and then proceed as private individuals, 
 who are free from public supervision. The objects in 
 so doing may be summed up as follows : To escape the 
 requirement to provide a sufficient cash capital, to escape 
 the taxes and other public burdens of insurance compa- 
 nies, and to escape the legal requirement to carry on hand 
 sufficient re-insurance reserves. The first two of these 
 objects are insignificant in comparison with the last. It 
 only needs to be explained that, if the shareholders of 
 regular companies were permitted to divide all the pre- 
 miums and merely let the capital stand to meet the 
 losses, they could in some cases draw down more than 
 ten times their capital stock. The premiums are the 
 fund from which losses are expected to be met. The 
 Lloyds system does not hold the associated members 
 responsible beyond the original undertakings although 
 they may have divided these unearned premiums among 
 themselves. 
 
 Fancy the same thing being applied to banking, namely: 
 That men should associate to do a banking business, 
 limit their liability and then treat the deposits as money 
 earned. The unearned premiums in insurance are of the 
 nature of deposits to pay for insurance to be furnished in 
 future. The dissipation of these premiums before they are 
 fully earned amounts in principle to a malversation of 
 trust funds and certainly should not be allowed. The 
 right to do an insurance business is claimed for indi- 
 viduals on the general ground that whatever business is 
 legitimate at all is legitimate for the individual. This 
 
42 FIRE AND OTHER PROPERTY INSURANCE. 
 
 could hardly stand against public policy. But in any 
 case, the right of a man to limit his liabilities is a mere 
 statutory right, given by law and custom and which can 
 be taken away without infringing upon his constitu- 
 tional rights. The engaging in individual underwriting 
 under a limit of liability excepting through the medium 
 of limited liability stock companies should certainly be 
 prohibited. 
 
CREDIT, SURETY, BURGLARY, TITLE AND 
 MORTGAGE INSURANCE. 
 
 The same argument which shows it to be unwise to 
 permit insurance against one's own great laches, tort or 
 crime, shows that insurance against the laches, torts or 
 crimes of others would be most commendable. For, as 
 the former may be expected to encourage criminal care- 
 lessness, indifference to the rights of others and even the 
 commission of crime, the latter may be expected to dis- 
 courage all these, since strong organizations of men are 
 thus brought to have a financial interest in seeing that 
 whosoever trespasses upon the rights of one of them is 
 properly punished. 
 
 It is a fact, well understood by students of economy, 
 that the losses because of uncollectible debts are not, as a 
 whole, borne by the. dealers who appear to lose but that, 
 instead, the buyers who pay then* bills, are compelled to 
 stand the loss in the form of enhanced prices. Solvent 
 purchasers, taken as individuals, can do little to prevent 
 being saddled with this loss, as they cannot make dealers 
 prudent about credits and cannot increase the efficiency 
 of collecting agents. The dealers have, through the 
 
 43 
 
44 CREDIT, SURETY, BURGLARY, TITLE 
 
 medium of collection and mercantile agencies, done some- 
 thing to enable them to judge more intelligently of 
 credits and to collect from defaulting debtors. But the 
 application of insurance to this form of risk does some- 
 thing which mere circumspection cannot do ; if properly 
 applied, it will bring home to each dealer the necessity of 
 keeping his line of credit well in hand, so that he may 
 not lose the benefits of insurance. But, in order that this 
 may take place, it will be necessary that there be tangible 
 benefits. The present regulations of the credit insurance 
 companies, almost without exception, seek to avoid 
 giving more than about ten months' insurance for a 
 year's premium ; and if this be not checked, the public 
 may not be convinced of its utility. Perhaps no prohib- 
 itory laws are needed, unless to prohibit this sharp 
 practice ; in general, this form of insurance should be 
 fostered. 
 
 Closely akin is insurance, not merely against laches but 
 against malversation of funds which may either be a tort 
 or a crime. No form of insurance better illustrates the 
 real nature of insurance than do corporate bonds of 
 surety. Nobody would expect a bondsman to return the 
 face of his bond when there was default in a small part 
 of that amount. It is recognized everywhere that the 
 very essence of surety is indemnity. The transfer of this 
 class of insurance for it is insurance, whether done by 
 individuals for nothing or a company for a consideratiou 
 to a company should be beneficial, mainly for the 
 reason that rogues are more likely to be brought to bay 
 and punished for their crimes. When friends are the 
 sureties, the chances are that this will not be done ; they 
 are likely to argue that they stand a better chance to 
 recover if they do not cause arrest and, in any case, they 
 are likely not to prosecute, merely because there is 
 nothing to gain by it. But the surety companies rightly 
 
AND MORTGAGE INSURANCE. 45 
 
 calculate that they have everything to gain by prosecut- 
 ing, because by so doing they hold before all others 
 whom they bond, a warning example. Consequently, 
 except when friends step forward and let the surety com- 
 panies out, they prosecute to the bitter end ; which fact 
 at once brings friends to the rescue and deters others 
 from entering upon a career of embezzlement. Anything 
 which tends, like this, to a stricter enforcement of the 
 laws is a benefaction. 
 
 But it is very easy for the surety companies to go 
 beyond merely guaranteeing the honesty and fidelity of 
 persons ; there are many cases in which the bond really 
 covers much more than that. For instance, life insurance 
 agents are not in general permitted to take notes for 
 premiums, except on their own responsibility. Still, 
 practically all agents do take them. For such premiums, 
 the agent and his bondsmen are held, whether he ever 
 really collected in cash, or not ; thus the bondsmen are 
 really guaranteeing, not merely the honesty of the agent, 
 but his business ability and, where the transactions 
 through him are too few to afford him a safe average, his 
 business fortune as well. This would not make any 
 especial difference, were it not that the surety companies 
 are likely to attempt using the same drastic means of 
 arousing the agent's friends and of warning the other 
 persons bonded, as it employs when actual embezzlement 
 has taken place. The State cannot afford to foster that, 
 and it might be well to guard against it either by a 
 prohibitory statute or a punitive one for false arrest. 
 Possibly, however, existing laws suffice; and, at all 
 hazards, as is well known, the surety companies avoid 
 this class of risks because of the much greater likelihood 
 of loss. 
 
 Notwithstanding which, the more venturesome of them 
 have exhibited a disposition to underwrite contractors' 
 
46 CREDIT, SURETY, BURGLARY, TITLE 
 
 bonds and other similar undertakings which involve the 
 risk of business ability mainly and fidelity to trust not at 
 all or in a very small degree. This is not open to the 
 objection named since in most cases there are no possible 
 grounds for prosecution. Outside of the risky nature of 
 such insurances, there is nothing to urge against them. 
 There is little danger of corporate suretyship making 
 those who are bonded less cautious than they are when 
 bonded by private persons. The probabilities are that 
 they will be more careful, for a corporation is a relentless 
 critic where it is financially interested, and would be 
 likely to take more precautions against bad management 
 than do private bondsmen. 
 
 A step further is insurance against actual crime such as 
 is contemplated in burglary insurance. Probably this 
 will, in time, be the most effective preventive of burg- 
 lary of financial institutions that could be devised. It 
 may surround the whole country with a preventive 
 detective force such as now operates in financial centers. 
 The nation and even the world are small affairs to cor- 
 porations which have their representatives everywhere. 
 The general patronage of this sort of insurance will make 
 of the insurance company one gigantic, centralized vigi- 
 lance committee. It is well known that, when the usual 
 operations of the law failed to cope with horse-stealing in 
 an early day in the west, the organization of the owners 
 of horses into a protective society soon put down the evil 
 effectually. Burglary insurance should have a similar 
 effect, and should by the detection and enforcement of 
 the laws against this crime cut short the careers of those 
 who now prey upon society throughout long lives. 
 
 Title insurance is a peculiar outgrowth of our foolish 
 laws relative to transfers of real property, in which mat- 
 ter we are copying the English laws which, while grow- 
 ing out of English historical conditions, are utterly out 
 
- 
 
 AND MORTGAGE INSURANCE. 47 
 
 of place in this country. There should be no such ques- 
 tion about real titles as would render such insurance 
 necessary or possible. Its popularity arises entirely from 
 the difficulty of ascertaining from abstracts of title just 
 what counter-claims there may be against property. The 
 passage of laws, denning titles and arranging for a 
 simpler system of registry, would remove this system of 
 insurance from the arena. It should be thus removed. 
 There is no occasion for increasing the hazards of modern 
 business life by such artificial means and the cause of 
 the hazard should be destroyed. Even as it is, the sys- 
 tem of insurance is open to grave criticism in its actual 
 operation ; for the companies generally do business 
 within a comparatively small radius wherein much of 
 the property is subject to one original title. Thus the 
 loss, if there should be one, would be severe and might 
 easily ruin the company and destroy the protection. 
 But the necessity for this form of insurance will doubt- 
 less be avoided by the introduction of -a different system 
 of real estate transfer and registry. 
 
 The issuing of debentures and otherwise guaranteeing 
 mortgages have not been generally classified as insurance 
 operations, though they are as truly underwriting as is 
 fire insurance. This is a form of credit insurance which, 
 when properly regulated, might greatly extend the loan- 
 ing on realty or even on personalty with safety into 
 channels which, by ordinary methods, are risky. For, of 
 course, it is the business of underwriting to cover 
 hazards, and by averaging the loss turn an insecure opera- 
 tion into a safe one. The affinity between insurance and 
 itself is recognized by the most democratic of the com- 
 panies for mortgage equalization, the building and loan 
 associations, which call the profit charged in excess of 
 ordinary loaning rates, " premium," thus acknowledging 
 that it represents the price paid to cover a risk of loss. 
 
48 CREDIT, SURETY, BURGLARY, ETC. INSURANCE. 
 
 There have been few serious losses in these mutual asso- 
 ciations but most stupendous losses in the mortgage and 
 debenture companies, owing not a little to the want of a 
 system for reserving for unearned premiums. But, at 
 bottom, there is nothing objectionable in the system and 
 no necessity for restraining statutes. 
 
REGULATION. 
 
 Legislatures have a passion for regulation. Perhaps 
 their favorite conception of regulation is to pile on petty 
 and annoying restrictions; but nothing pleases them 
 better than to find something to regulate. All the more 
 agreeable is the task, if the business to be regulated has 
 slowly and painfully evolved without the assistance of 
 favorable legislation and even against the spirit of 
 adverse legislation. This feverish anxiety to try his 
 hand is, in the man, the legitimate successor of the 
 experimental disposition of the child who takes a clock 
 to pieces to readjust it. 
 
 In other countries, and notably in the colony of New 
 South Wales, Australia, insurance companies have pro- 
 gressed to a very high degree of economy, efficiency and 
 responsibility, practically without regulation, except of 
 the most primitive and elementary sort, such as is of 
 general application. The most successful of all life insur- 
 ance companies, in providing for the needs of the insured 
 at the lowest cost and most effectively and safely, is to be 
 found there ; and, in a conversation with me, its manager 
 modestly asserted that the absolute freedom of action 
 allowed his company was chiefly responsible for this 
 fortunate result. It is, in any case, doubtless true that 
 the net results of regulative laws are not what the friends 
 of good methods might desire. This is owing, largely, 
 to the fact that this sort of regulation is undertaken by 
 
 49 
 
50 REGULATION. 
 
 men who are not fully informed on the subject and that 
 the laws which are enacted are always the outcome of 
 the struggles of adverse interests and are, not infrequently, 
 compromises which really accomplish nothing. In the 
 United States, the most of that which is valuable in 
 insurance regulation, has been obtained either in answer 
 to a practically united demand of the companies inter- 
 ested or by the active intervention of some unusually 
 able and independent insurance superintendent or com- 
 missioner. But, when results of great value have been 
 thus attained, they have been confined to one State and 
 the want of uniformity has been an evil which almost 
 offsets the advantages of the good laws that may have 
 been put in force in some States. 
 
 So far as this country is concerned, it is altogether too 
 late to discuss the desirability of regulative statutes. 
 Regulation is here, and here to stay. It is, perhaps, 
 possible to show that regulation began, also, because it 
 was imperatively needed and as the result of a strong 
 disposition of insurance companies to wildly speculate 
 and to behave in a harsh and unfair manner toward the 
 insured. But, whether the responsibility for the earliest 
 regulation rests upon the companies or meddlesome legis- 
 lators matters very little at this time, since the fact of 
 insurance departments and regulation is fixed in every 
 State in the nation. Probably, the evil of want of uni- 
 formity might be cured by national supervision, though, 
 under our present Constitution, national supervision 
 could hardly be extended to companies which confined 
 their operations to their domicile and the number of such 
 companies could be trusted to increase if there were an 
 advantage in so doing. The other manner in which 
 practical uniformity might be brought about, is. through 
 the imitative disposition of legislators. The standard 
 fire insurance policies of very many States are now alike ; 
 
REGULATION. 51 
 
 in nearly all the States the standards of solvency for all 
 sorts of insurance companies are substantially the same. 
 Through the medium of the voluntary meetings of the 
 heads of insurance departments, the current in favor of 
 uniformity of reports and, in the end, of regulations of 
 all sorts is constantly becoming stronger. There is at 
 present no indication that this uniformity will be 
 dictated by the companies, for the department officials 
 have independent and original views on these matters. 
 Altogether, in view of the recent expressions of these 
 gentlemen in their reports as well as in convention, 
 there is reason to expect that a general codification of 
 insurance laws along uniform and just lines will soon 
 take place in nearly all States. 
 
 When full and free enabling statutes have been enacted, 
 empowering the people to combine to secure to each 
 other the benefits of insurance against all possible risks 
 of loss or damage either through mutual companies or 
 stock companies, the first problem which arises is to lay 
 down rules regulating the management of the companies. 
 In doing so, reference must be had to the conveniences 
 of the time and to the principles of equity. The respon- 
 sible management of any institution should certainly be 
 vested in its owners. In the case of a mutual company 
 the owners are the members, a majority of whom may be 
 considered to have the right to control. An opportunity 
 should therefore be given for that majority to express its 
 will and to enforce it. The best possible opportunity 
 should be given. In these days of quick mails and other 
 means of communication, the proxy system cannot be 
 considered the best means that can be afforded under 
 the conditions. The fact is, as everybody knows, that 
 the sense of mutual ownership is practically completely 
 lost in all proxy-managed mutual institutions. In 
 general, it may be laid down as the first principle of the 
 
5 a REGULATION. 
 
 regulation 'of management of mutual companies that 
 some system of direct voting or of proportional or district 
 representation should be directed as the method of ascer- 
 taining the will of the owners. 
 
 In the case of stock companies, the necessity for minor- 
 ity representation is at times painfully evident. In the 
 case of some companies, the surplus is immensely greater 
 than the capital, and the owner of a limited amount of 
 the capital stock may be put into position to crowd the 
 minority stockholders out of the company by piling up 
 surplus and not paying dividends. This has not often 
 taken place in insurance companies, however, whose 
 stocks are infrequently found in the speculative market ; 
 and a study of this subject is desirable as a preventive 
 measure rather than to cure an existing evil. 
 
 It has not been considered necessary for the State to 
 establish arbitrary standards of solvency for ordinary 
 stock or mutual corporations. While such corporations do 
 business largely on the faith in their solvent condition of 
 persons who sell to them, such faith is not necessary on 
 the part of those to whom they sell. Buyers from them 
 get actual, tangible values in concrete wares. The 
 indemnity nature of insurance has already been repeat- 
 edly adverted to in this series. What buyers of insurance 
 receive is a promise to pay, upon a certain contingency, 
 and based upon the solvent condition of the promissor. 
 The ascertaining that solvency, owing to the contingent 
 nature of the liabilities, is a delicate and difficult pro- 
 ceeding which it is impossible that every citizen should 
 perform for himself. The best argument that this should 
 be done by responsible State authorities, is that, where 
 this is not the case, individuals of repute, whose ability 
 and honesty is certified by chartered scientific bodies, 
 have needed to be called on as a substitute for the State 
 departments. Both these chartered bodies and the State 
 
REGULATION. 53 
 
 departments have in practice to the present time made 
 use of altogether too inflexible, arbitrary and artificial 
 systems of ascertaining the fact of solvency. Solvency 
 is a matter of fact, not of theory, in determining which 
 all the favorable and unfavorable facts of a company's 
 experience should be taken into account, as well as the 
 nature of its insurance agreements. The systems now 
 in vogue are wanting in just these qualities and it is to be 
 hoped that, as regulative statutes become more uniform, 
 this evil may be remedied. Suggestions for such remedies 
 will appear in the consideration of distinct sorts of insur- 
 ance regulation in this series. 
 
 The regulation of the form of policy contract is found 
 in the United States in every gradation from general 
 regulations to the dictation of every word of the contract, 
 which appears to be an impairment of the right of free 
 contract. Such arbitrary dictation was at first resented by 
 insurance companies ; but, in the interest of uniformity, 
 the fire insurance companies have latterly welcomed it as 
 the minor of two evils and have co-operated in drawing 
 up standard policies which are, on the whole, more 
 satisfactory than the policies formerly in use. Whether 
 a general application of such particular regulation would 
 be well, however, may be doubted, since it would act as 
 an absolute prohibition of experimentation by the people, 
 such as has developed the insurance business of to-day. 
 I am of the opinion that dictation of the specific condi- 
 tions in insurance contracts, other than such as are 
 necessary to avoid altering the nature of the contract 
 and such as are requisite to the clear understanding of 
 the terms of the contract, are unwarrantable interferences 
 with the liberty of the people. This will be more 
 particularly explained as the regulation of different forms 
 of insurance is separately taken up. 
 
 Regulations of insurable interest and of the mode of 
 
54 REGULATION. 
 
 adjusting claims, so that the nature of the transaction 
 shall not change from indemnity to gambling, are also 
 proper and defensible ; as also are such reasonable regula- 
 tions of the methods of conducting the business as shall 
 prevent injury to the general interest. This sort of 
 regulation is demanded by considerations of public policy 
 and its legitimacy is also defended by the fact that the 
 insurance companies are artificial persons, existing by 
 permission of the State for the benefit of the people. 
 Therefore, their conduct must not be such as to make 
 them a damage to the public interest. 
 
 The gathering of statistics has now, for a long time, 
 both in this and all civilized nations, been regarded a 
 public function and of the utmost value in forwarding 
 civilization and its institutions. The statistics of the 
 past are footprints by which the future must be guided. 
 It has come to be recognized that even a large part of 
 the sanctHy of the private life of an individual must give 
 way before the rights of the public as expressed in the 
 census taker. No class of statistics is more valuable than 
 that of insurance. Those who have studied the function 
 of insurance in modern life are pretty generally con- 
 vinced that it is one of the most significant and potent 
 factors in our industrial civilization and destined to play 
 a greater part in the next century than in this. It is, 
 then, of the utmost importance that full and reliable 
 statistics be drawn from the insurance experience of the 
 present and be preserved in such form as to codify into 
 a reliable guide for future operations. This is being 
 carried on in an utterly insufficient way and even the 
 opportunities which are offered certain leading depart- 
 ments are not being fully availed of. It may be said, 
 also, that each fresh demand for statistical information is 
 met with a narrow, selfish and oftentimes merely blind 
 opposition on the part of companies. 
 
REGULATIVE STATUTES. 
 
 LIFE INSURANCE. I, 
 
 In the United States, life insurance corporations have 
 assumed several forms, which are commonly grouped 
 under two general classifications, regular and assessment. 
 Those which are called regular use fixed premiums, 
 without the power to increase except on renewable term 
 insurance in which case the premiums are fixed and 
 increasing that is, they increase according to a fixed 
 scale. Those which are classed as assessment reserve the 
 power to increase their premium rates as contingencies 
 may demand. 
 
 Kegular companies may be subdivided into stock, 
 mutual and mixed. A company with a stock capital, 
 issuing non-participating policies only, is called a stock 
 company; a company without stock capital, whether 
 issuing only participating policies or issuing both partici- 
 pating and non-participating policies, is called a mutual 
 company ; and a company with a stock capital, which 
 issues participating policies, whether it also issues non- 
 participating policies or not, is called a mixed company. 
 
 Even greater variety is found among assessment socie- 
 ties, though, with but one exception, they are mutual. 
 Perhaps, the most scientific and accurate way of classify- 
 ing them is according to their mode of apportioning 
 
 55 
 
56 REGULATIVE STATUTES. 
 
 among the contributors the insurance cost. Some associ- 
 ations assess all equally without regard to age ; others 
 assess according to fixed ratios, graduated by the ages 
 at entry ; and still others apportion the insurance cost by 
 an advancing scale of rates according to the attained age. 
 But this classification will find some associations making 
 use of all these different systems, having started with 
 the first plan and gradually evolved to the last. The 
 societies, themselves, make two classes, known as " busi- 
 ness " associations and fraternities. The former are those 
 which are conducted on the proxy system and the latter 
 are managed on the lodge or representative system. 
 Though, on the whole, the fraternities may not have 
 adopted the last mentioned method of apportioning losses 
 to the same extent as the "business" associations, yet 
 societies may be found in each class which would com- 
 prehend all three methods of apportioning losses. 
 
 Up to this time the practice has been to govern the regu- 
 lar and assessment companies by utterly different statutes. 
 The repudiation of the "business" associations by the 
 fraternities has, of recent years, led to a third division of 
 the laws in many States. The original bone of contention 
 was concerning the matter of reserve. The regular com- 
 panies which sell insurance at fixed, level premiums, all 
 recognize the law of increasing cost in apportioning their 
 losses. Consequently, the premium which they collect 
 is higher than the policy's share of the losses would in 
 the earlier years require and lower in the later years. 
 The premium has been averaged or equalized. To keep 
 it level, it is evidently necessary to accumulate the excess 
 of the premium over the cost during the earlier years, so 
 as to overcome the excess of the cost over the premium 
 in the later years. This is reserve. As the fixed pre- 
 miums of the regular companies are based on fixed 
 mortality and fixed interest expectation, when the rates 
 
LIFE INSURANCE. 57 
 
 are properly computed, the excess and its accumulations 
 should be just sufficient to make good the later deficiency. 
 Under the present reserve Jaws in every State except 
 New York, the arbitrary test is made by a standard table 
 and a certain rate of interest, without regard to whether 
 the company's rates were constructed according to that 
 table or not or to whether the company's experience has 
 been more or less favorable than the standard by which 
 it is tested. 
 
 The conditions being determined, actuaries use to say 
 that the reserve may be computed either by the prospec- 
 tive method or by the retrospective. This sounds very 
 formidable but is, in fact, very simple. It merely means 
 than, under fixed conditions, you may determine the 
 reserve by what is needed to make good future deficien- 
 cies or by what has been contributed in excess of past 
 requirements. But solvency is a matter of fact and 
 should be so treated. The true way to determine it in a 
 company which uses fixed rates is to estimate the future 
 losses year by year by a table which probably represents 
 the company's future experience ; discount the same to 
 their present value at a rate of discount corresponding to 
 the rate which it will probably realize ; and add tht 
 present matured liabilities to make the total. Then in a 
 similar manner and by the same rates of mortality and 
 interest, discount the future premiums to be received, 
 first deducting from the same the average portion 
 required for expenses, and to this add the actual present 
 resources, to make the total. The difference between 
 the discounted future losses and the discounted future 
 premiums represents the amount of accumulation the 
 company should have in reserve. This reserve will agree 
 with the reserve actually accumulated or found by the 
 retrospective method only when the facts and conditions 
 as well as the net premiums all agree with the standards 
 
5 8 ' REGULATIVE STATUTES. 
 
 used to ascertain future liabilities and resources. In 
 other words, the artificial retrospective method, which is 
 practically universal in this country, always exaggerates 
 the liabilities of companies whose experience is likely to 
 be better than the standards employed and always 
 understates the liabilities of companies whose experience 
 is likely to be not so good. And, by not taking into 
 account the differences in premiums, it likewise errs on 
 the same side. In other words, though, because the 
 standards are high, a strong presumption of solvency is 
 raised by the application of this method of valuation, 
 there is no certainty that a company is solvent because 
 found so by the tests commonly employed. We already 
 have the anomaly that precisely the same tests are 
 applied to a company writing only diseased or previously 
 rejected risks. 
 
 M The proper method of determining the fact of solvency 
 would be to make use of the company's own experience 
 to form a standard, if the experience be sufficiently 
 extended, or, if not, of some table likely to correspond 
 most closely ; and to use a rate of discount reasonably 
 indicated by the company's method of investment but 
 not exceeding, perhaps, certain limits, so as to avoid the 
 possibility of assuming the continuance of altogether 
 exceptional experience. Such a plan would be more 
 intelligible and conclusive to the minds of the public 
 than the plan now in use. It would occasion a little 
 more labor for actuaries and some of that labor would be 
 beyond mere tabulation of results from already prepared 
 figures. But that would not be a distressing evil, espe- 
 cially as it would tend to foster originality. 
 
 It is possible to estimate with equal precision the future 
 losses of an assessment society and to discount the same. 
 But, since the premiums may, according to the contract, 
 be increased to cover any future deficiency, it must 
 
LIFE INSURANCE. 59 
 
 always be assumed that the possible increase covers any 
 apparent deficiency, unless facts prove a different situa- 
 tion. But ex post facto assessments are bad, irremediably 
 bad. The very first requirement from these societies 
 should, for their own safety as well as the security of 
 their patrons, be that they should hold in hand available 
 assets, equal to all accrued claims and to all claims likely 
 to accrue before the next assessment is paid. Beyond 
 that, reasonable regulation would hold an association 
 strictly accountable for any reserve which it agreed to 
 make. This is now-a-days often disregarded, openly and 
 shamelessly so by the New York department in recent 
 examinations. 
 
 Associations which apportion their losses according to 
 certain increasing ratios but which attempt to equalize 
 the cost without guaranteeing the premium, can only do 
 so on the basis that the excess of premiums in the earlier 
 years over the cost will, with its accumulations, offset 
 the excess of cost over premiums in the later years. This 
 is precisely the same course of reasoning which justified 
 the regular company reserve, except that the resources 
 to make up future deficiencies are not limited to the 
 stipulated premium. At the same time, societies which 
 issue such contracts should unquestionably be held to 
 accumulate the reserve which their own calculations call 
 for, both because to expend the same is a breach of trust 
 and, also, because the time to increase the premium has 
 arrived when it is found that this reserve cannot be kept 
 good. 
 
 Practically the only reason for creating two or three 
 separate bodies of statute law, with the possibilities of 
 special privileges which that implies, is the necessity for 
 discrimination in this matter of reserve. It will be 
 found that the following simple rules will cover this 
 objection : 
 
60 REGULATIVE STATUTES. 
 
 For resources, add to assets in hand, the present value 
 of future fixed premium, to be determined as follows : 
 First, deduct from each premium the average expense 
 cost to be taxed against it ; then determine what table of 
 mortality most closely conforms with the probable future 
 experience of the company and also what rate of interest 
 may be expected to be realized ; discount the net pre- 
 miums thus arrived at by the interest and decrement 
 rates arrived at, which gives the present value of future 
 premiums; add, also, the present value, by a similar 
 process, of future stipulated premiums, not fixed, noting 
 whether the necessity for increasing the premiums exists. 
 
 For the liabilities, add to liabilities already accrued, 
 first, those likely to accrue before the next premiums are 
 collected ; then, the present value, by the standards 
 determined on, of all future losses under fixed and stipu- 
 lated premium policies. 
 i) 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANCE. II. 
 
 Perhaps next in importance after proper regulations as 
 to testing the solvency of life insurance companies is the 
 subject of proper regulations for the government and 
 management of companies. At present, there is the 
 greatest variety about the modes of governing companies. 
 It might naturally be expected that a stock company 
 would be managed by one system, a mixed company by 
 another and a mutual company, whether regular or 
 assessment, by another ; but there are differences in 
 modes of control which are not accounted for by these 
 differences in structure. 
 
 The general principle upon which the systems for 
 ' governing corporations is based, is the adequate repre- 
 sentation of each of the joint owners. In a stock com- 
 pany these owners are the shareholders and to them is 
 given the entire control of the corporation, subject to the 
 regulation of the laws and of public officers having 
 supervision over them. The method by which the will 
 of the shareholders is ascertained is by their votes for 
 directors to whom are delegated the powers of manage- 
 ment. From days when the ready modes of communi- 
 cation by mail and otherwise which now exist, had not 
 been invented, joint-stock corporations have inherited 
 
 6x 
 
6a REGULATIVE STATUTES. 
 
 the system of representation by proxy at these meetings. 
 In comparatively small companies, with but few share- 
 holders and them for the most part known to each other, 
 this way of learning the shareholders' will is, perhaps, 
 as good as could be devised, outside of a plan which 
 would discover the will of each shareholder directly. 
 But in companies with large capital and many share- 
 holders, some of whom have bought for investment as 
 they would buy bonds and mortgages, this voting by 
 proxy becomes a farce and, also, in many cases a con- 
 venient tool by which a minority management may 
 perpetuate itself. 
 
 Especially in banks, trust companies and other institu- 
 tions which collect together vast sums of other people's 
 money, is there reason to guard the management from 
 becoming one of a cabal which may long ago have parted 
 with their interests but which hold on by the power of 
 unlimited proxies for the purpose of hiding past rascal- 
 ities or perpetrating new ones. Minority representation, 
 which in all stock companies would appear to be prudent 
 and unobjectionable, in those companies whose opera- 
 tions are of a fiduciary character is especially and 
 urgently desirable. All life insurance companies, doing 
 business on the level premium or the quasi-level pre- 
 mium plan, are so far fiduciary institutions that they are 
 collecting large sums of money to be held in trust to pay 
 future cost of insurance. In the nature of things, it is to 
 be expected that active companies will in the long ruo 
 accumulate funds of this character far exceeding the 
 capital embarked by the shareholders. Such a thing has 
 been known in the history of American life insurance as 
 the representative of the majority interest deciding that 
 there was more money in wrecking the company than in 
 running it, on which decision he acted. Not without 
 disastrous results to the holders of the minority of the 
 
LIFE INSURANCE. 63 
 
 stock and to the holders of the company's policies, you 
 may be sure. Minority representation in purely stock 
 companies would greatly increase the probability of 
 faithful management in the interest of both shareholders 
 and policyholders. 
 
 Several of the mixed companies and even of those 
 which do a mutual or participating business exclusively 
 are governed entirely by the stock interest. In many of 
 the companies, however, the control is supposed to be 
 divided between the shareholders and the policyholders, 
 so that each of the interests has an equal voice in the 
 management. In some States this is the law. One com- 
 pany, at least, the Equitable of Iowa, goes further than 
 this and gives the holder of $1,000 insurance the same 
 voting power at its elections as the holder of one share of 
 stock. In the government of most mixed companies, 
 however, the proxy system is in use, not merely for 
 voting stock interests but also for policyholders' interests. 
 The effect of this is generally precisely the same as if no 
 voting power was granted the insured, namely, that the 
 stock absolutely controls the elections. The exception 
 would be when some officer, who was placed in authority 
 by the stock, obtained through his official influence 
 proxies enough from the policyholders to make himself 
 independent of the stockholders. Such a condition could 
 hardly be considered an improvement. 
 is The application of the proxy system to policyholders' 
 voting is not merely an anachronism ; it is also an atro- 
 cious misapplication. While it might not unreasonably 
 be expected that in a business enterprise in which a score 
 or even a hundred men were interested as shareholders, 
 these men could most expeditiously and readily transact 
 their business by empowering, each as he saw fit, some 
 other to act for him when not at the meeting, there is no 
 reasonable ground for expecting any such satisfactory 
 
64 REGULATIVE STATUTES. 
 
 results from attempting to govern a company which is 
 not a business enterprise, so far as the policyholders are 
 concerned, by offering to them the doubtful advantages 
 of the proxy voting privilege. Their numbers and their 
 want of acquaintance with each other, aggravated also 
 by the unwillingness of managers to afford them facil- 
 ities for communicating with one another, make it 
 impossible for them to express their will intelligently and 
 so as to be obeyed. 
 
 This is true, at the best ; and when the management, as 
 is commonly the case, purposely manipulates the system 
 so as to perpetuate itself in power, the voice of the mem- 
 bers is most effectually stifled. No task is much more 
 hopeless, ordinarily, than to take up the cudgels against a 
 manager thus entrenched, however distrusted he may be 
 by the policyholders. It has been successfully attempted, 
 though, at least three times in the history of American 
 companies ; twice, by the combined action of the agents 
 and once by influential trustees. But, as a rule, members 
 would prefer to drop out rather than to spend their time 
 and money in striving against such odds. Even when 
 the glaring faults of the Beers' management of the New 
 York Life were published the country through, it is 
 doubtful whether the rallying committee of the opposi- 
 tion secured proxies enough to have made a decent fight, 
 had the matter come to an issue. 
 
 Nearly all the regular mutual companies are proxy- 
 governed ; the others permit direct voting only, which 
 confines the control to those who attend the meeting. 
 As their membership is scattered over the entire nation, 
 and as their management is strongly entrenched at 
 home, this amounts to much the same. One or more of 
 the companies limit the number of proxies which can be 
 voted by one man to a very moderate number, thus 
 avoiding the evil of absolutism ; but, so far as ascertain- 
 
LIFE INSURANCE. 65 
 
 ing the will of its members is concerned, they might as 
 well have no such limit. Merely to check absolutism is, 
 by no means, to make the rightful owners the actual 
 power in the company. It may be said without exag- 
 geration that in none of these companies is there ever any 
 actual effort to learn the will of the members, either as 
 to who shall rule their companies or in what manner 
 they shall be ruled. 
 
 The same thing is true of all the so-called *' business " 
 associations, the managers of which seek to be auto- 
 crats also. But in most of the fraternities, a different 
 order of things is encountered. These insurance corpo- 
 rations have sprung from the people directly and have 
 inherited from the great orders which preceded them a 
 representative mode of control which may be studied by 
 other mutual companies to advantage. The representa- 
 tion is generally of lodges, without regard to number of 
 members, but sometimes proportional as well as local in 
 character. But, whether the representation be such as 
 will most effectually ascertain the will of the members or 
 not, it is at least an attempt to learn their will and its 
 result is that the members take tremendously more inter- 
 est than do the members of any other companies. An- 
 other result is that they are economically managed and 
 that the people prefer them to such a degree that they 
 can obtain members by the score with but trifling outlay. 
 
 In these days, when the vote of members separated by 
 the entire continent might be received by mail and 
 counted in a fortnight, there is no reason why the will of 
 the members should not be ascertained by direct voting 
 on all important questions and especially on the question 
 of what officers they will have to manage their compa- 
 nies. This is entirely feasible and would be economical. 
 The experience of the great Australian Mutual Provident 
 Society which has used this method for many years, is 
 
66 REGULATIVE STATUTES. 
 
 that it furnishes a stable management, directly account- 
 able to the members, and consequently always on its 
 good behavior; and that the members take great interest, 
 inform themselves, prove progressive and at the same 
 time conservative. Unless some cogent objection can be 
 formulated, it follows as a matter of course that the man- 
 agement of all mutual companies should be secured to 
 their owners, the members, in such manner that they 
 will really control their affairs. 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANCE. III. 
 
 It is not merely incumbent on the State to see that 
 the real owners of a company have an opportunity to 
 control its action ; it is also a State function to require 
 that a company shall deal equitably between those con- 
 cerned as shareholders or policyholders on a participat- 
 ing plan. And this is not in any proper sense paternal- 
 ism. For the corporations are the creatures of the State, 
 which permits for convenience's sake limited-partner- 
 ships to take that form. In a partnership, whether lim- 
 ited or otherwise, each partner has at all times a right to 
 an accounting and to what is equitably due to him. This 
 right he can enforce in the courts by a civil action at law 
 or equity. The State, in creating a corporation instead of 
 a limited-partnership, has not altered the nature of the 
 relations between the parties, though it has put jt into 
 the power of the majority or those who by proxy repre- 
 sent the majority to completely control the company to 
 the exclusion of others, a condition of affairs not possible 
 under a partnership. One consequence of this condition 
 is that it is a thing of common occurrence in companies 
 of all sorts for the majority interest to ruthlessly trample 
 on the rights of the minority, even going to the length of 
 " freezing out " all minority interests by tricks known to 
 
 67 
 
68 REGULATIVE STATUTES. 
 
 the "street." Having deprived the parties in interest 
 from one recourse against injustice by making majority 
 rule supreme, it is plainly the duty of the State to 
 prevent the misuse of this power over the property of 
 others. This can only be accomplished by so supervising 
 their apportionment of gains and losses that each gets 
 his due. 
 
 To the companies and actuaries of the United States is 
 clue the invention and very general adoption of the 
 "contribution plan" of dividing profits of life insurance 
 companies which is based on just principles and should 
 give equitable results. The system consists merely of 
 returning to the policy holder salvage or profits from each 
 part of his premium, according to his actual contribution 
 to the aggregate salvage or profit. Thus, in paying his 
 premium he makes a certain contribution to the pay- 
 ment of death losses for the current year. The sum of 
 all such contributions comprise the total expected loss. 
 If the actual loss is less than this, there has been a sal- 
 vage, and to this salvage he is considered to have con- 
 tributed in the ratio of his contribution to the total con- 
 tribution. Similarly, in the computations of most com- 
 panies, the "loading" on his premium is considered to 
 be, practically, a contribution to current expenses and 
 the total of these contributions to form the aggregate 
 expected expense. Again, if the actual expense be less 
 than the expected, there is a salvage, and to this salvage 
 he is considered to have contributed in the ratio of his 
 "loading "to the aggregate "loading." In the matter 
 of surplus interest, his funds are considered to have 
 earned interest at the same rate as the mean assets (in 
 some companies, possibly, as the mean reserve) of the 
 company. Whatever this exceeds the amount of interest 
 required to make good the individual reserve, is deemed 
 surplus interest, contributed by him. These three items 
 
LIFE INSURANCE. 69 
 
 compose his surplus, to which may be added propor- 
 tionate apparent gains from discontinued policies. 
 i-^Though this plan has been adopted with practical 
 unanimity by the companies of the United States, and 
 though it is manifestly the fair and just manner of 
 apportioning profits, considerable variations from it will 
 be found in practice. For instance, there appears to be a 
 departure from the principles of this method in the 
 apportionment of surplus to short endowments and to 
 limited-payment life policies in one company, especially 
 after the latter become paid-up policies. There is a dis- 
 proportion between the surplus allotted these policies and 
 an ordinary life policy, for instance, which is not readily 
 explicable. The phenomena of larger dividends on 
 limited-payment policies, after they become paid-up, are 
 possibly subject to explanation on the ground that the 
 company has treated the "loading" as a provision for 
 expenses throughout the life of the policy, and has from 
 the premiums created a special reserve, from which an 
 annuity to cover expenses is deducted each year, the 
 salvage from this provision being a considerable amount. 
 If this be the true explanation and it is hardly more 
 than a guess the company would do well to make the 
 system known to all interested in insurance. Possibly, 
 also, some reason, consonant with the principles of con- 
 tribution, exists for the disproportionate dividends 
 allotted to short term endowments. 
 
 Another apparent departure from the system is in the 
 dividends apportioned to twenty year tontines based on 
 endowment premiums by the great tontine companies. 
 In one of these there is also an avowed discrimination 
 by creating a separate mortality class of the insured 
 under these policies, a fact which becomes important 
 principally because practically all the new business for 
 many years has been transacted on this plan. Thus the 
 
70 REGULATIVE STATUTES. 
 
 older policy holders are deprived in large degree of the 
 salvage derived from the accession of new lives. This 
 same discrimination, by no means avowed, seems to be 
 practiced by an office founded by one of the joint- 
 inventors of the contribution plan. For three years past, 
 natural premium policies issued before 1887, the pre- 
 miums on whi<5h are supposed, on the theory of the man- 
 agement, to consist of pure expense and mortality cost 
 (the former being strictly defined), have been costing a 
 net premium higher than would be required by an 
 experience equal to the full expectation by the American 
 tables. It is not credible that the mortality of the com- 
 pany exceeds the expected deaths by this table ; the pub- 
 lished returns indicate no such abnormal experience. 
 The only tenable explanation is that these lives are being 
 put in a class by themselves. 
 
 It appears reasonable that State regulation should both 
 repress these apparent discriminations and require such 
 openness with the interested policyholders that no dis- 
 crimination could be practiced. To this end, it might be 
 well to require all companies to insert in their policy 
 contracts a definition of surplus, consonant with the con- 
 tribution system, and promising definitely to pay the 
 same or whatever percentage of the same the individual 
 company purposes to pay. Such conformity as this, which 
 leaves each individual company free to make such a con- 
 tract with its policyholders in this regard as may suit it 
 and them, provided it be clear and conformable with an 
 equitable distribution of profits as between policyholder 
 and policyholder, would appear to be unobjectionable on 
 any defensible grounds. 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANCE. IV. 
 
 Perhaps one of the most important things to regulate 
 in life insurance is insurable interest, which directs what 
 persons shall be competent to effect and sustain an insur- 
 ance on the life of another. Because insurance was not 
 one of the ancient customs of the English people, this 
 question is not treated in English common law which was 
 but a compendium of those customs. And, since insur- 
 ance A>as introduced, there has been very little legislation 
 on the subject. Consequently, the law which exists con- 
 sists principally of decisions of courts on disputes between 
 rival claimants under policies. The courts have proceeded 
 on diverse grounds in making these decisions. In this 
 country, the trend has been toward a strict construction 
 of insurable interest, shutting out insurance in favor of 
 persons who have not a financial interest in the life 
 of the insured. This follows closely the fundamental con- 
 ception of insurance, as indemnity for loss. 
 
 The theory of insurable interest as thus applied, has in 
 this way appeared to grow out of reasonable construc- 
 tions of the common law of England. Singularly 
 enough, English courts derive from that law no such con- 
 structions. On the contrary, in Great Britain and her 
 most important dependencies, the courts hold that a man 
 
 71 
 
72 REGULATIVE STATUTES. 
 
 may legally take insurance or permit insurance to be 
 taken in favor of any person he may choose, and the 
 courts sustain such contracts when made. Moreover, the 
 beneficiary may for a valuable consideration sell his inter- 
 est in the policy, thus creating a new beneficiary even 
 without the consent of the insured. As a consequence of 
 such decisions, life insurance policies are often sold at 
 public sale, the buyer bidding according to his estimate of 
 the probable life of the insured. Such scenes are not 
 especially edifying ; but it often happens that by reason 
 of the feeble health of the insured much more than the 
 reserve value is realized on these policies. And the sys- 
 tem cannot have been so dangerous and subversive of 
 good morals as it seems, or the carrying of insurance on 
 lives in which the speculator is not interested, would have 
 been attended with more and graver scandals than it 
 really has. Richard Teece, actuary and manager of the 
 Australian Mutual Provident Association, informs me that 
 very few scandals have arisen from an abuse of the system. 
 
 We have not wholly escaped the murders which might 
 be expected to follow such a wide open policy, though our 
 courts have been very strict in their construction of insur- 
 able interest. The Holmes-Pitezel murder is a case in 
 point. But it seems reasonable, notwithstanding, that all 
 insurance should be based on an actual interest in the 
 thing insured, whether it be property or life. And that 
 proposition may safely be taken as a basis for sound legis- 
 lation, especially as to effecting or transferring insurance 
 without the consent of the insured. 
 
 This exception, relative to the consent of the insured, 
 raises at once the question : Who is to be the judge as to 
 the insurable interest hi a man's life? Are not courts 
 bound to recognize as valid obligations those obligations 
 which a man, in the full possession of his senses, himself 
 recognizes ?' Is not the taking and paying for insurance 
 
LIFE INSURANCE. 73 
 
 by the insured in favor of a certain beneficiary the best 
 possible evidence that in the judgment of the insured that 
 beneficiary has an insurable interest in his life, based on a 
 recognized duty or purpose to aid in the support of the 
 beneficiary? This is already conceded by the courts in 
 cases where the insured has retained control over the pro- 
 ceeds of the policy and disposed of them by will. But that 
 concession is made because of the fiction that he has an 
 insurable interest in his own life which is the most pre- 
 posterous nonsense, not to be endured anywhere but in 
 legal sophistry and in order to bolster up a good cause. It 
 were much more to the purpose if the right of the insured 
 to designate the beneficiary, who should be considered to 
 possess prima fade insurable interest, were frankly con- 
 ceded. 
 
 If this were established by statutory regulation, as it is 
 now in some States, in the case of fraternal associations, all 
 that would remain necessary to do would be to enact 
 reasonable regulations for cases of transfer of the interest 
 of one beneficiary to another, of insurances when the 
 beneficiary is to pay the premiums and of insurances, 
 especially, which are effected without the knowledge or 
 consent of the insured. Effecting insurance without the 
 consent of the insured, such as on little children or the 
 aged, should only be permitted in favor of near relatives 
 who have a very evident interest in them. 
 
 In general, it may be said that no transfer of the interest 
 of a beneficiary should be permitted without the consent 
 of the insured. There is no other way in which specu- 
 lation in the proceeds of policies can be effectively 
 prevented. An exception to this, however, may be made 
 when the policy is merely assigned as security for a loan 
 and interest thereon, any remainder after repaying the 
 sum advanced and interest belonging to the original 
 beneficiary. Such a transfer would not involve any 
 
74 REGULATIVE STATUTES. 
 
 speculative element and would be unobjectionable. It is 
 the opinion of a very high authority on assignments of 
 life policies that any other assignment might not hold 
 against representatives of the beneficiary suing for the 
 excess. .But this doubt should be made a certainty. 
 When the insured consents to the assignment, he of course 
 practically recognizes the iiisurable interest of the new 
 beneficiary and that recognition should be considered to 
 establish insurable interest. 
 
 In cases in which it may appear that the beneficiary and 
 not the insured intended and expected to pay the pre- 
 miums on the insurance, there is occasion for increased cir- 
 cumspection. The right of a man to recognize his duty to 
 protect a beneficiary by carrying insurance in his favor, 
 does not imply his right to permit whom he will to specu- 
 late on his chances of living. The law should recognize a 
 distinction between the two cases and should apply much 
 severer tests to the insurable interests of persons who are 
 so far self-sustaining that they can afford to take and pay 
 for insurance on the life of another in the hope of reaping 
 a profit from the transaction. 
 
 To recapitulate, an insurable interest in a man's life 
 should be recognized as vesting in : 
 
 Immediate relatives who are or may become dependent 
 upon the insured ; 
 
 Creditors to the !amount of the insured 's obligations to 
 them, with interest, costs and premiums paid by them ; 
 
 Creditors of a designated beneficiary, to which the 
 policy has been assigned, to the amount of the obligation 
 due them, with interest, costs and premiums paid by 
 them ; 
 
 Other persons, whether related or not, whose insurable 
 interest the insured has recognized by taking insurance in 
 their favor, while in sound mind, the premiums to be paid 
 
LIFE INSURANCE. 75 
 
 by himself, or has similarly recognized by consenting 
 that insurance already existing be assigned to them. 
 
 Perhaps the most shameful incident connected with 
 existing laws, as interpreted by the courts, is the fact that 
 insurance is not sustained in favor of the mother of 
 children, gotten out of wedlock, nor in some States in 
 favor of the children, themselves ; as if a great enough 
 wrong had not already been done these persons. 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANGE.-Y, 
 
 The regulation of the form of life insurance policy con- 
 tracts has never been carried to the extreme point which 
 has been reached in fire insurance, in which, as w r e shall 
 see hereafter, standard policies, complete in every detail, 
 are forced upon the companies, producing absolute uni- 
 formity. There are some special reasons why such a 
 course may not be so objectionable in fire insurance as in 
 life insurance, which reasons will be dealt with in due 
 time. But it would be entirely proper for the State to 
 prescribe the general form of life insurance policies, indi- 
 cating the order in which its clauses should appear. 
 
 An insurance policy is a variation of a simple contract, 
 and of the nature of a promissory note. Its primary 
 elements are, first, a consideration and, second, a promise. 
 But to these, by the very character of the transaction, 
 there are added in life insurance policies the following 
 important features, namely : the name, relationship or 
 other interest of the beneficiary ; the time, place and mode 
 of payment of the principal sum ; the contingency upon 
 which the principal sum becomes payable, made explicit 
 by the detailed description of all exceptions and Specifica- 
 tions. Then, if the policy be a mutual or participating 
 one, a clause or clauses are needed to specify the nature and 
 
 77 
 
78 REGULATIVE STATUTES. 
 
 amount of the participation and the time, place and mode 
 of paying the same. And, if the policy is to be subject to 
 surrender, the conditions of surrender should be stated. 
 
 The form of contract to be prescribed should provide for 
 a specific mention of the consideration together with the 
 time or times and place or places at which the same must 
 be paid. The practice of incorporating a reference to the 
 policyholder's application as a warranty and part of the 
 consideration should be prohibited. The only effect of 
 inserting such a condition is to put the company in the 
 position of being able to perpetrate a fraud on the bene- 
 ficiary by refusing payment because of trivial errors ; it 
 would always be able to defend itself against a claim which 
 it could prove to be based on fraud, even though the state- 
 ments were accepted as mere representations. 
 
 The promise should be in the simplest language ; I know 
 of none clearer or more succinct than the "promise to 
 pay " of a simple promissory note. And in immediate 
 conjunction with this promise, in good, bold type, the 
 company should be required to state under just what cir- 
 cumstances it would pay, and under just what circum- 
 stances it would not pay. Conditions not there specified 
 should be held not binding as against the insured and 
 beneficiary. The practice of hiding the most important 
 conditions and exceptions of a policy in small print, far 
 from the promise which they qualify and often in some 
 obscure part of the application, cannot be too severely 
 guarded against. 
 
 The principal sum should be payable as soon as notice of 
 loss is given and within the State, instead of at the home 
 office of the company. .Thus the penalty for delay of pay- 
 ment falls upon the company. The company seeks 
 applicants for insurance at their places of business ; they 
 do not seek the company at its place of business. Conse- 
 quently the whole transaction should be defined to be of 
 
LIFE INSURANCE. 79 
 
 the State in which the insured made application. The 
 policy should be so drawn as to be subject wholly to the 
 laws of that State ; and 110 stipulation should be permitted 
 that it should be construed by the laws of another State, 
 nor that a different limit of time for legal action should 
 apply to a claim under it than the State by its statutes pro- 
 vides. 
 
 A clear, fair, unequivocal definition of what constitutes 
 surplus should be incorporated in the policy form but 
 every company should be left free to promise to pay the 
 whole or any definite or even undefined part of the policy- 
 holder's sfyare of the surplus. The mode or modes of 
 applying or paying this surplus should also be required to 
 be specifically described in the policy itself and in such 
 manner that the companies are not left free to practically 
 diminish the same by discrimination between policy- 
 holders. 
 
 In the same way, although it will be found that the 
 definition of surplus involves the recognition of the policy- 
 holder's title to the amount reserved on account of his 
 policy, it is well to permit each company to stipulate for 
 such surrender conditions as it desires, or for no surrender 
 value at all. But the law should require that the mini- 
 mum surrender value at the close of each policy year, in 
 cash, paid-up and extended insurance, be endorsed thereon. 
 
 Such a form should read somewhat as follows : 
 
 11 The (name of company) in consideration of (amount 
 or amounts, times and place of payment of premiums) 
 promises to pay to (name, residence, relationship or inter- 
 est of the beneficiary) (principal amount) dollars, upon 
 the death of (name and residence of the insured) at (place 
 of payment preferably, any of its offices) subject to the 
 following conditions : (conditions qualifying the contract 
 to pay the principal sum). The surplus of the premiums 
 paid under this policy shall be determined as follows : 
 
fo REGULATIVE STATUTES. 
 
 From the premium or premiums hereon shall be deducted 
 from time to time the policy's share of the company's 
 expenses and the actual cost of the net insurance furnished 
 and interest shall be added to the remainder at the net 
 rate currently realized on the company's mean assets ; the 
 excess of this amount over the reserve required by the 
 rules of the company shall be the surplus, (all or what 
 part of) which shall be returned to the policyholder (at 
 what tunes and in what manner. ) This policy may, after 
 (what interval) be surrendered to the company which 
 will pay therefor a surrender value (in cash, paid-up or 
 extended insurance), the following being the minimum 
 surrender value which will be allowed at the end of each 
 policy year : (table of minimum surrender values in cash, 
 paid-up or extended insurance.)" 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANCE. VI. 
 
 There is, perhaps, a more pronounced tendency to legis- 
 late concerning the conditions which may be incorpor- 
 ated into a life insurance policy contract, than on almost 
 any other subject connected with life insurance. This is 
 especially true of surrender conditions or the conditions 
 which determine what values in cash or otherwise may 
 be allowed on surrender. The laws of Massachusetts are 
 existing evidences of this tendency, and the laws of New 
 York and Missouri present other phases of the same 
 thing. The original Massachusetts statute provided for 
 extended insurance in the event of discontinuance ; this 
 has since been altered to give an alternative of paid-up 
 insurance or cash. The law of Missouri is much like the 
 original law of Massachusetts, and the laws of New York 
 provide for certain definite paid-up values. An instance, 
 however, of the little value which many persons for 
 whose benefit these laws were intended attach to them, 
 appears in the fact that for many years the New York 
 companies have required applicants to waive their legal 
 rights to surrender values in full tontine policies even to 
 the extent of agreeing to waive the right to any surrrender 
 value. In Missouri, also, all applicants in these compa- 
 nies waived their rights under the statutes of that State 
 
 81 
 
8a REGULATIVE STATUTES. 
 
 which illustrates the same indifference, though the courts 
 have held that such a waiver is not valid. In Massachu- 
 setts also, companies which do not offer the benefits guar- 
 anteed by home companies under the laws of that State 
 have all along succeeded in selling their policies to a very 
 large aggregate amount. All of which things seem to 
 indicate pretty plainly that the benefits conferred by 
 such laws are not altogether appreciated. 
 
 It has, I consider, been clearly demonstrated that there 
 is no necessity justifying the forfeiture of a large part of 
 the unearned premium of a life insurance policy because 
 the owner chooses to discontinue it. The theory of 
 possible adverse selection because of conscious choice of 
 persons in good health to withdraw, is not borne out by 
 the facts which on the contrary show that companies 
 that allow liberal surrender values often exhibit very 
 superior mortality experiences. The two lowest mortality 
 experiences on record are those of unrestricted surrender 
 companies, if we except that of one company covering a 
 short time and comparatively few lives. It is also 
 demonstrable that there is no actual gain to persisting 
 members from the forfeitures of those who discontinue, 
 the apparent gain being more than offset by the increased 
 expense of getting new insurances on such a system. But 
 these matters I have given sufficient attention elsewhere.* 
 They only have this bearing here, namely : that no law 
 compelling the allowance of full surrender values involves 
 danger, loss or even want of gain to any of the members 
 of a company. 
 
 At the same time, there is also no apparent reason why 
 companies and their patrons should not be permitted to 
 make such contracts in this particular, as in all others, as 
 
 ^Especially in " Effects of Free Surrender and Loan Privileges 
 in Life Insurance." 
 
LIFE INSURANCE. 83 
 
 may be mutually agreeable, when not against publfc 
 policy. There is no known principle of public policy 
 involved in the question of the surrender values to be 
 allowed for life insurance policies. But there is a distinct 
 principle of public policy involved in the proposition that 
 the conditions of such a contract in this particular should 
 be set forth clearly and distinctly in the contract, espe- 
 cially as there has from the beginning been a deal of 
 misunderstanding about the matter among policyholders. 
 If the facts are clearly and unequivocally set forth in 
 concrete form, that is, in figures showing the minimum 
 values which will be allowed, there would be no misunder- 
 standing and the more liberal and less liberal policies 
 would thus sell on their merits in the competitive market. 
 Concerning the conditions qualifying the promise to 
 pay, something similar may be said, namely : the most 
 important thing, decidedly, is to insist that the conditions 
 be plainly and unequivocally set forth in immediate 
 connection with the promise to pay and in good sized 
 print. When this is done, there will be little reason to 
 regulate the contents of the conditions themselves ; for 
 competition will also operate in that particular. It may 
 be said in this connection that the American companies, 
 as a whole, have perhaps gone quite far enough in remov- 
 ing offensive or objectionable conditions. Possibly, a law 
 providing that policies should not be rendered void 
 because of anything not due to the act or negligence of 
 either insured or beneficary or which they were unable to 
 prevent, would not be unwise. But, when compelled to 
 plainly set forth the conditions, companies will be pretty 
 likely to get close to that desirable point without further 
 interference on the part of the law. In the opinion of 
 many competent observers they have already gone too 
 far in making policies by their terms indisputable and not 
 even subject to the defence of fraud, according to the 
 
84 REGULATIVE STATUTES. 
 
 contracts. And they sometimes themselves confess that 
 they have gone too far in this matter ; for they compro- 
 mise claims by refusing to recognize the binding force of 
 the incontestable provision as against fraud. 
 
 There are some reasons which do not at present appear 
 on the surface, why too narrow regulation should not be 
 practiced in the matter of these conditions. One import- 
 ant reason is that the laws should be comprehensive and 
 general in their application. Insurance against death by 
 accident, for instance, would by a statute making all COIN 
 ditions illegal, be interdicted completely ; and merely to 
 state that fact is to condemn such legislation. Similarly, 
 insurance on the lives of pledged abstainers, during their 
 abstinence only, would not be permissible. In view of 
 the fact that in the experiments which are yet to be made 
 before we have material for classification of risks, many 
 sorts o-eonditions at present not employed may need to 
 be used, it seems the part of wisdom to proceed with cau- 
 tion in making laws regulating these conditions, and to 
 proceed on the basis of permitting the widest liberty con- 
 sistent with fairness between the parties and with public 
 policy. 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANGE.-VII. 
 
 Level premiums in life insurance are constructed on the 
 fallacious basis that the expense of the first year will not 
 be greater than that of succeeding years. That is, to say, 
 to begin with, net level premiums were first constructed 
 on the assumption of certain mortality and interest experi- 
 ence, and in these net premiums there was no provision 
 for expense. To these was added a percentage ". loading," 
 intended both to cover expenses and all possible contin- 
 gencies, such as abnormal mortality or decrease of interest 
 below the rate used as a factor in determining the net 
 premium. It has been the custom of American com- 
 panies, as we have seen elsewhere in these papers, to 
 charge against their policies their share of expenses in 
 proportion to these expense " loadings." 
 
 Already by several leading French companies the sys- 
 tem of loading for expenses according to the nature of the 
 expense provided for has been adopted ; and, before learn- 
 ing of this, the writer had also tried the same experiment 
 in this country with a company which consulted him. 
 The items of expense naturally cleave into four divisions, 
 namely : Cost of procuring business ; cost of collection ; 
 cost of management ; cost of handling investments. The 
 first of these is naturally a lump sum to be paid com- 
 
 85 
 
86 REGULATIVE STATUTES. 
 
 monly as soon as the insurance is effected, and, indeed, 
 part of it is necessarily incurred before the insurance is 
 effected. The second in this country at least must com- 
 monly vary with the premiums actually collected, being 
 a percentage thereon. Since the main office of an insur- 
 ance company is to provide insurance and investment 
 expenses are covered in the fourth item it follows almost 
 necessarily that policies should contribute to expenses of 
 management according to the amount of insurance 
 carried. Indeed, Walter C. Wright believes in applying 
 this principle to practically all expenses, and also in divid- 
 ing the expense according to current actual, instead of 
 nominal insurance. Investment expenses are, as a whole, 
 incurred according to the amount of money handled and 
 are in any case chargeable as a deduction from the 
 revenue from investments. 
 
 The old system which is still practically in universal 
 use in America made no distinction as to the classes of 
 expenses. The whole expense of the company is bunched 
 and apportioned against each policy according to the load- 
 ing on its premium, which loading in turn is a mere 
 percentage addition to the original premium. It thus 
 happens that policies do not contribute to pay expenses in 
 anything like the same ratios that they contribute to 
 occasion expenses. The ill effects of the system are, how- 
 ever, most marked in the matter of policies with limited 
 payments, in which the provision for expenses intended 
 to cover the policies' contribution throughout their entire 
 existence is dissipated wholly during the premium-paying 
 period, leaving no provision for contribution to mana- 
 gerial or investment expenses after the premium-paying 
 period has ceased. And this reaches the acme of the 
 unscientific and ridiculous when a policy is issued on the 
 single premium plan and the whole provision for expenses 
 dissipated the first year. 
 
LIFE INSURANCE. 87 
 
 Laws, regulating life insurance, should discriminate 
 between these four classes of expenses and should cause 
 companies to incorporate in their premiums and 
 reserves loadings according to the purpose for which 
 the loadings are added. This can be done with- 
 out fixing an arbitrary loading by merely requiring that 
 the loadings should be thus separated and graduated. 
 The provision for investment expenses need not there 
 appear, and, indeed, should not ; for expense of that 
 nature should be deducted from investment returns. 
 But the loading for first cost should appear in the first 
 premium ; loading for collection should be added to each 
 net premium ; and loading for managerial expenses should 
 also be added to each premium, but not in the ratio of 
 the premiums but at so much per thousand of insurance. 
 And the actual apportionment of expenses to individual 
 policies should then be according to the provisions thus 
 separately made. 
 
 The necessity for such regulation was never more 
 apparent than at present. In the early history of life 
 insurance in this country the commissions for procuring 
 new insurances were within the loadings on the first pre- 
 miums ; and much more was left of the premium than 
 was sufficient to pay its mortality cost and to make good 
 its reserves. Gradually the cost of procuring insurances 
 has increased until at this time it practically never leaves 
 enough to pay the mortality cost and to make good the 
 reserve, often does not leave enough to pay the mortality 
 cost, and in some cases and companies has required more 
 than the whole premium. Such a condition, calling for 
 contributions from other policyholders to make good 
 these deficits, and relying upon the expectation of getting 
 even some day out of loadings on future premiums on the 
 new policies, is complex, fallacious, misleading and dan- 
 gerous. If necessary in order to provide for the cost of pro- 
 
88 REGULATIVE STATUTES. 
 
 curing insurances and also at the same time to preserve the 
 feature of level premiums, no reserve should be counted 
 against these policies until the end of the second year. 
 That is to say, the rate-making and reserving should be 
 based on the actual facts instead of the theory that the 
 expense cost is the same each year. And, furthermore, 
 where the premium-paying period is to cease while the 
 insurance continues, an additional reserve should be held, 
 equivalent to the estimated future expenses of manage- 
 ment. 
 
 In accordance with these provisions, companies should 
 be estopped by the law from paying a commission on the 
 first year's premiums in excess of the loading for that pur- 
 pose. If they cannot buy business with that provision, 
 they should increase the provision and not trench upon 
 other funds for the purpose. It is only by doing this 
 that the infamy of charging most of the cost of procur- 
 ing new business against the premiums of older policies 
 can be exercised. Companies should also be inhibited 
 from paying more for collection than is warranted by the 
 provision for collection. A little more latitude is required 
 as to expenses of management, any excess of which over 
 the provision may properly be charged, when divided 
 into the ratio of amounts of insurance, against surplus in 
 other expense funds. This for the reason that while cost 
 of procuring insurances is largely a matter of contract, 
 and while cost of collection is also readily determinable, 
 expense of management may vary considerably and sud- 
 denly in an uiiibrsctfu 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANGE.-YIII. 
 
 Two different species of laws have got on the statute 
 books, proposed, according to their forms at least, to 
 prevent discrimination by life insurance companies. The 
 enactment of such laws is sought to be justified on grounds 
 of public policy, it being set forth that these corporations 
 are performing a quasi-public office and so should not be 
 permitted to treat one more or less liberally than another. 
 
 This legislation first put in an appearance as a political 
 move, aimed at securing the negro vote, or, in any case, 
 at giving a vent for abolition sentiments. Probably both 
 motives contributed to cause the enactment of laws com- 
 pelling the insurance companies to accept negro risks at 
 the same rates as whites. The acts have, of course, been 
 carefully phrased in legal language, so that the apparent 
 intention is to prevent discrimination because of color 
 between persons of the same age and expectation of life ; 
 but the meaning is that the State determines arbitrarily 
 and against actuarial evidence that a negro of the same, 
 age and general health and family history as a white man, 
 has the same expectation of life. Such a law operates, 
 when enforced, as a check on the determination by life 
 insurance companies from their own experiences or other 
 
go REGULATIVE STATUTES. 
 
 data what are true relative expectations for the two races. 
 And, in many cases, it has also operated to cause com- 
 panies to reject all negro applicants, without appearing to 
 have established any rule requiring their rejection. In 
 other words it has had a boomerang effect upon the 
 interests of the persons whom it was hoped that it would 
 benefit. 
 
 Scientific classification of hazards in life insurance is a 
 thing whieh legislatures ought to foster and encourage ; 
 for only by that course can the benefits of insurance be 
 extended to cover many individuals who under the present 
 plans are regarded as uninsurable. When life insurance 
 companies have learned to properly and accurately dis- 
 criminate, the best risks will receive their proper rating 
 and many who are now refused insurance altogether will 
 find it possible to secure at adequate rates the protection 
 which their families stand in need of. And the benefits 
 of intelligent discrimination will not stop there. In so far 
 as, for instance, the rating up of premiums on an individ- 
 ual's life is caused by anything for which he is responsible 
 or which he can remove, it will have the effect to give 
 an inducement for a correction of that which unfavorably 
 affects his prospects for long life. By this means life 
 insurance can be made the genuine handmaid of hygiene, 
 causing the abandonment of evil habits and the like ; and 
 considerations which regulate this discrimination might 
 easily have an influence even upon heredity, parents 
 being consciously guided by the lessons which the life 
 insurance companies inculcate by their practices. From 
 these facts and from the further fact that the true mission 
 of insurance is to accurately determine hazards and 
 charge for them, a thing which of itself has a beneficial 
 social influence, it clearly appears that laws against dis- 
 criminations should apply at most merely against arbitrary 
 and unreasonable discriminations. 
 
LIFE INSURANCE. ?1 
 
 The acts prohibiting discrimination on account of coloT 
 were presumably asked for by the negroes who were 
 intended to be the beneficiaries. It has been followed by 
 acts of quite another nature, known as "anti-rebate" 
 laws which were not asked for by their pretended benefi- 
 ciaries but by that body of men among whom the very 
 persons who had been guilty of such discrimination were 
 to be found. These bills on the surface were for the 
 protection of the policyholder to whom no rebate was 
 given and who was on that account supposed to be greatly 
 aggrieved not because he did not get a rebate but 
 because somebody eise did. The bill proceeded on the 
 theory that if one who did not obtain a rebate discovered 
 that his neighbor had, he would consider himself injured, 
 not because he was himself missed, but because his neigh- 
 bor was not missed. Because of this, he was understood 
 to be demanding, not that a law be passed compelling 
 the companies to lower their rates and give everybody 
 what they could afford to give his neighbor, but that they 
 should not give the rebate to either himself or neighbor. 
 As a matter of fact, no such a body of unrebated policy- 
 holders ever put in an appearance in the legislative halls 
 or petitioned to have their grievances redressed. The 
 persons who did so appear and did so petition were the 
 agents and companies who were doing the rebating and 
 in whose power it already lay to stop doing so. 
 
 Such a situation was anomalous, and in fact, contradic- 
 tory. Within the companies the old policyholders whose 
 contributions for expenses were being heavily drawn upon 
 to pay the enormous commissions that made the rebates 
 possible, had a genuine grievance, perhaps : but, had they 
 approached the legislature at all, it would doubtless have 
 been in order to restrain the companies from paying such 
 enormous commissions. To them it would have made 
 little difference whether part of these commissions went 
 
94 REGULATIVE STATUTES. 
 
 to the applicants or all was retained by the agents ; indeed, 
 they would have been likely to rejoice to learn that a large 
 part had reached the public and that the agents had not 
 actually become millionaires. 
 
 What the ultimate effect of such laws may be, it is hard 
 to forecast. Their constitutionality is seriously doubted 
 by many able lawyers. If they are constitutional, a cloud 
 is thrown upon the validity of every policy, the pre- 
 mium of which has been rebated in part or wholly ; the 
 holder of such a policy is thus at the mercy of one who 
 is at best a law-breaker, the rebater himself. The con- 
 struction of the laws has so far been such as to make them 
 cover much more than was probably intended, such as 
 to prohibit giving commissions to insurance agents on 
 policies on their own lives, dating policies back to prevent 
 increase of nominal age, taking notes for premiums with- 
 out interest, accepting premiums in advance and allowing 
 a discount and to prohibit charging a less premium for 
 the first than for subsequent years, though all be charged 
 alike. The propriety of laws which are thus in restraint 
 of trade is very questionable ; but at the same time it may 
 be that this is merely the first step toward the taking over 
 of insurance by the State which thus begins its encroach- 
 ments upon the preserves of corporations. Whether that 
 would be an evil or a good may be a disputed question. 
 
REGULATIVE STATUTES, 
 
 LIFE INSURANGE.-IX. 
 
 What statistical information the State should require 
 life insurance companies to furnish to the public has ever 
 been a matter of dispute. Naturally the disposition of 
 individual companies is to supply only that information 
 which in each case gives the company an advantage in 
 comparison and to suppress that information which 
 might place it at a disadvantage. This is the legitimate 
 outgrowth of the competitive system and is precisely the 
 modus operandi of all companies in their field work, 
 always, of course, with more or less show of fairness in 
 order to make the comparisons appear plausible. It can 
 hardly be adopted as the information to be legally 
 required, though, because there would be utter want of 
 uniformity. Scarcely two companies would give the 
 same information about their condition and operations ; 
 and this would not be statistics, whatever else it might 
 be. The first principle, then, of laws requiring statistical 
 information from the companies, is that the information 
 required of all the companies alike should be of the same 
 character, so that comparisons may be instituted. 
 
 The disposition of many is to extend the province of 
 statistical inquiry, so as to pry into many details of man- 
 
 93 
 
94 REGULATIVE STATUTES. 
 
 agement, wherein companies generally differ -greatly and 
 which have little importance to the public. In other 
 words, there are those who place no limit to the proper 
 scope of statistical inquisition ; but, instead, would make 
 it an inquisition, indeed, so that the mistakes, petty mis- 
 doings and extravagances of the management should be 
 annually exposed. Whether it might not be a good 
 thing to enable the policyholders of companies to thus 
 investigate their affairs, independently of the legal author- 
 ities, is not to be considered in this place, except to say 
 that in the case of mutual companies and associations such 
 powers appear properly to belong to the members and, 
 within reasonable bounds, should be legally granted to 
 them. But no such investigations are necessary for usual 
 statistical purposes and there is no reason why the insur- 
 ance departments' reports should be lumbered up with 
 them. 
 
 To determine what is the proper limit of the statistical 
 inquiries of authorities, it is well to consider what is the 
 purpose of such inquiries. First of all, it is desired to 
 determine the financial condition of the companies, which 
 may be accomplished by ascertaining their resources, 
 sufficiently in detail to make their value apparent, and 
 their liabilities. Many would have the work of the 
 department stop short at that point, condemning all further 
 demands as inquisitorial and unreasonable. They thus 
 take a position which is directly antagonistic to those 
 whom they regard as meddlers. It appears, from sound 
 premises, that their attitude is no more defensible than 
 that of their opponents. The State properly wishes to 
 protect its citizens by giving them information about the 
 soundness and relative strength of life insurance compa- 
 nies ; it may quite as properly wish to furnish them 'with 
 officially ascertained information concerning the relative 
 success of the management of these companies, especially 
 
LIFE INSURANCE. 95 
 
 since in almost all of them an applicant is expeeted to 
 benefit or suffer financially by that management, through 
 his participation in the surplus. Therefore, statistical 
 information of a general character, having a direct bearing 
 on the economy and success of management, should be 
 required and furnished to the public. 
 
 This does not mean that the companies should be com- 
 pelled to exhaustively expose the details of their trans- 
 actions each year; it does mean that they should be 
 compelled to furnish in aggregates just that information 
 that will enable the public to intelligently decide which 
 of them it desires to patronize. This would not call for 
 as much detail as do the blanks now in use, which do not, 
 with the exception of the " Gain and Loss Exhibit," 
 adopted by the convention of. insurance commissioners in 
 1895 but afterward discarded by most of them, supply infor- 
 mation of any great value in this respect. The efficiency 
 and economy of management of any company can be 
 judged by comparing three things in its actual experience 
 with three standards, common to the companies or at least 
 common to most companies. These are : Actual losses to 
 expected losses according to the standard table ; actual 
 expenses to expected expenses which is the aggregate 
 " loading : " and actual interest to the interest necessary to 
 make good the reserve required by law. If the intricate 
 and yet inexact " Gain and Loss Exhibit " is cut down to 
 these three items and a comparison of values allowed for 
 surrendered policies to their reserves added, about all 
 there is in it that is valuable will have been preserved, 
 and the information will be in a far more readily intelli- 
 gible form. 
 
 In order to make these figures valuable for statistical 
 comparison, care must be taken that they relate to the 
 same thing. For instance, industrial insurance should be 
 tabulated separately. There is no object, also, in requiring 
 
96 REGULATIVE STATUTES. 
 
 this information from a stock company writing non-par- 
 ticipating insurance only or requiring it concerning non- 
 participating insurance in any company if the mortality, 
 expense and interest accounts of such business are kept 
 separate by the company. From the actual interest, also, 
 should be deducted the interest belonging to tontine or 
 other accumulations of surplus. A more thorough tabu- 
 lation of expenses is also desirable, especially a comparison 
 of expenses for the first year of insurance with the 
 "loading" on premiums for the first year of insurance. 
 Probably the publication a single time of the facts in this 
 matter would suffice to induce the companies to devise 
 some better way for providing the money to procure busi- 
 ness, than deducting it from the contributions of older 
 policies. 
 
 Not only would the discovery and publication of this 
 apposite and significant information enlighten the public ; 
 it would also prevent the successful use of misleading 
 ratios, such as have been common, and would, besides, 
 tend to shame the companies' managers, when the show- 
 ing was especially discreditable, into better practices. The 
 report of the Connecticut department covering the busi- 
 ness of 1895 shows, for instance, an aggregate expense of 
 
 97 per cent, of the aggregate "loading " in all the compa- 
 nies, which means that some companies have used more 
 than the entire " loading." The mere exposure of such 
 conduct of the business tends to correct the evil. And 
 when the true ratios, which are few and simple, illustrat- 
 ing the efficiency and economy of management, have 
 become common property, the fallacious and misleading 
 ratios will no longer answer their purpose. Who, for 
 instance, would listen to a comparison of death-rates per 
 thousand insured or of death losses to interest receipts, 
 when the true comparison of the losses companies did 
 have with the losses they expected to have, was accessible? 
 
LIFE INSURANCE. 97 
 
 Other countries already require statistical information of 
 this sort, conspicuously Switzerland, Prussia, and other 
 European nations. But in many cases, as in the " Gain 
 and Loss Exhibit," it is unfortunately accompanied with 
 a confusing mass of annoying inquiries of inconsiderable 
 importance. It would be better if the inquiries were 
 rigidly confined to those matters which are neither of the 
 realm of expert accounting or actuarial science, but which 
 are comprehensible by the people at first hand. 
 
REGULATIVE STATUTES. 
 
 PERSONAL INSURANCE OTHER THAN LIFE. 
 
 To this present time, few branches 01 insurance appear 
 Lo have required less regulation than personal accident and 
 illness insurance, if we may trust the legislatures to have 
 reflected by their acts the actual demand. And, in this 
 respect, reason is in accord with experience, for the 
 nature of this class of insurance is so simple and personal 
 that few of those mysterious and ill-understood matters 
 which called for regulation in life insurance are encoun- 
 tered. Commonly the contracts are simple, direct 
 promises to pay, upon the occurrence of definitely 
 described contingencies, definite sums of money for a 
 limited period of time or upon death by accident a cer- 
 tain lump sum of money or a series of instalments run- 
 ning over several years. The contracts are usually short 
 and distinct in all of their provisions and cover about as 
 broadly as could be asked. 
 
 Two or three things about these contracts as generally 
 drawn require attention. One thing is that the payment 
 of monthly or weekly indemnity is often deferred until 
 the completion of the limited term or until the recovery 
 from the ailment, sufficiently to be about one's business. 
 Sometimes the injured have been led, not recognizing 
 
 99 
 
ioo REGULATIVE STATUTES. 
 
 this, to make proof of loss before really recovered, and 
 have thus inadvertently put themselves in the position of 
 having released the company from further liability. Now 
 and then, even with their eyes open, injured men have 
 been compelled through dire necessity to thus prema- 
 turely release the company. This should be effectually 
 prevented ; if necessary, it would be proper to pass laws 
 requiring the disability payments to be made at monthly 
 intervals. In the same way it might not be improper to 
 require that policies which pretend to cover in specific 
 amounts the "loss of a hand or a foot or other member, 
 should cover the entire loss of the use of that member. 
 Mere caviling disputes on technicalities of definition 
 should be avoided by legislative definition of the mean- 
 ing of contracts, if required. 
 
 Most of the caviling, however, is after all not the con- 
 sequence of difference of opinion as to construction of lia- 
 bility under the policy contract but as to the facts. 
 Disability is so broad a term that those who like to loaf 
 at a good monthly income might very well conceal their 
 disinclination to work under that euphemism. But in 
 this matter at the present time, because of its superior 
 financial ability, the company is likely to have much the 
 advantage over the poor and often distressed claimant ; 
 and, it is to be feared, this advantage is sometimes made 
 use of. Nowhere is the desirability of a cheap and speedy 
 arbitrament more clearly desirable than in the settlement 
 of disputes between such companies and their claimants. 
 Voluntary arbitration will not do ; they have that now. 
 What is needed is a law to make it compulsory to submit 
 disputes of this nature to arbitrators to be selected in the 
 usual way, one by the claimant, one by the company and 
 a referee by these two. 
 
 The effect of the establishment of such a system, with 
 full and final authority given to the arbitrators to deter- 
 
PERSONAL INSURANCE OTHER THAN LIFE. 101 
 
 mine all questions of fact, upon the almost wholly 
 neglected branch of personal insurance, illness insurance, 
 need not be merely surmised. Only by the adoption of some 
 such a system for settling disputes is it possible for illness 
 insurance to thrive. The chief difficulty with it in prac- 
 tice is that it is very difficult to determine between illness 
 and shamming, and also to distinguish between disabling 
 and non-disabling illness. All these are questions of fact, 
 concerning which arbitrators are likely to judge as fairly 
 and impartially as may be ; the truth of which statement 
 is attested by the circumstance that only by the estab- 
 lishment of such arbitration by law has illness insurance 
 been made to thrive in Great Britain or elsewhere.. 
 
 Such a cheap, speedy and impartial means of determin- 
 ing questions of fact would leave few questions to be 
 determined by the courts, but those of legal construction 
 of the contract. These are not so many ; and, with the 
 facts determined before' the case was appealed to the 
 courts, the judgments of the courts would in each decision 
 be made to stand out with great distinctness. A remedy 
 might be sought, as has been done in fire insurance, 
 in the adoption of a standard policy, but the desira- 
 bility of such a policy is exceedingly questionable. 
 The tendency of personal insurance should be, as 
 it at present is, toward covering more and more contin- 
 gencies and giving protection to more and more classes of 
 men. A standard policy at this time at all hazards, would 
 certainly be a conservative compromise, and, by thus 
 crystallizing, would be a stumbling block in the way of 
 making personal insurance what it ought to be. 
 
REGULATIVE STATUTES, 
 
 FIRE INSURANCE. I, 
 
 No branch of insurance has been so regulated as fire 
 insurance. At this time the States in many cases regu- 
 late the whole subject from end to end, excepting only 
 the rates of premium, and devote some effort also to regu- 
 lating the rates by refusing to those engaged in the busi- 
 ness the privilege of harmoniously agreeing upon them. 
 The State dictates how and with what capital fire insur- 
 ance companies may set forth and what form of policy 
 they may issue, which means what contract they shall 
 be privileged to make ; which latter provision, at least, is 
 a degree further than the State has gone in other lines of 
 insurance. 
 
 A reason exists for it in fire insurance, however, that 
 does not exist in most other departments of insurance. 
 In fire insurance it is not usual for property to be insured 
 in one company only ; on the contrary, it is in many cases 
 covered by many companies. The cause of this is, first, 
 the disinclination of companies to write large lines, and, 
 second the disinclination of the insured to risk all in one 
 company. The insured u makes assurance doubly sure " 
 by not chancing all in one company, and the companies 
 by so dividing their risks that in all probability they will 
 
 103 
 
io 4 REGULATIVE STATUTES. 
 
 not experience disastrous losses in a very short time. 
 Both companies and insured have become wise on this 
 point as the result of great conflagrations, and of that at 
 Chicago, especially. 
 
 It thus happens that a large number of policies are run- 
 ning concurrently on the same property. But, if the 
 terms of these policies are different, it may transpire that 
 there are serious provocations of disputes between the 
 companies as to their relative liability. This situation is 
 not endurable, and that it is not endurable is felt by 
 nobody more plainly than by the companies themselves, 
 which instruct their agents to make sure in all cases that 
 these concurrent policies read and cover alike, as to the 
 written portion. But it is clear that if the printed por- 
 tions of policies differ widely and if the contingencies 
 against which the policies cover are not the same, there 
 cannot be a harmonious adjustment of the common loss, 
 even though the written portion be alike, thus describing 
 in the same manner the property to be insured. It was 
 to cover such a case that standard policies were con- 
 structed and adopted in several States, and the companies 
 enjoined from using any other form. The benefits are 
 patent. 
 
 But uniformity has its disadvantages as well as its 
 advantages, the most serious disadvantage being a disposi- 
 tion to crystallize into what may now be the best possible 
 form but what is, notwithstanding, far from a perfect 
 form. It is the office of insurance to insure, to cover to 
 the uttermost. The exceptions and reservations in insur- 
 ance policies are, so far as they go, refusals to insure. 
 They are justifiable just so far as necessity compels their 
 use and no further. Whether necessity does so justify 
 their use is a matter of opinion upon which men may 
 differ according to their knowledge of the facts and con- 
 cerning which all engaged in insurance may be of one 
 
FIRE INSURANCE. 105 
 
 opinion now and of quite another when events have 
 demonstrated the fallacy of the old view. Standard poli- 
 cies, when permitted to stand for a long time without 
 alteration, are likely to represent an ultra-conservative 
 phase of insurance opinion, and to contain many pro- 
 visions which the most enlightened and progressive 
 underwriters know to be unnecessary. 
 
 Moreover, uniformity means the suppression of indi- 
 vidual experiment which is sometimes required in order 
 to explode ancient fallacies and bring in the new truth. 
 It sometimes happens that under a uniform system 
 affairs will go along their somnolent course and the false 
 and foolish things will be universally accepted as verities 
 and never inquired into nor given an opportunity to show 
 their true colors. This, however, is not likely to be the 
 case when legislators and the people whom they repre- 
 sent keep up a constant pressure for simpler and yet sim- 
 pler conditions as they usually do. The consequence of 
 that is that, in the course of debate and contention, any 
 new light which exists is brought to bear on the subject. 
 
 Within the past year considerable impetus has been 
 given to the movement for simpler forms and less con- 
 ditions by the paper read at the convention of the Fire 
 Underwriters' Association of the Northwest by Insur- 
 ance Commissioner Fricke, of Wisconsin, and the 
 discussion which ensued both at the convention and 
 since then in the newspapers. There is every likelihood 
 that an era of simplification of fire insurance contracts 
 is at hand, such as the era of simplification of life 
 insurance contracts which has resulted in life insur- 
 ance being about as clean and unexceptionable a proposi- 
 tion as one can find in business. But it is hardly to be 
 expected that, with standard policy forms in constant 
 use, this era will come in so rapidly as in life insurance 
 where the companies were in active and bitter competi- 
 
io6 REGULATIVE STATUTES. 
 
 tion. There one daring innovator could and did force 
 indisputable policies on his competitors by urging his own. 
 
 But then no such competition could well exist between 
 fire companies, anyhow, because of this same division of the 
 risk among many companies, and, also, because of the 
 frequent renewals of policies. The competition of fire 
 insurance agents for business has always been and always 
 must be principally in rates of premium or in other 
 advantages of a similar nature offered the insured, so long 
 as conditions remain anything like those obtaining at 
 present. 
 
 Encouragement of the simplification of policies might 
 be offered by law through an amendment to standard 
 policy enactments, piermitting companies to waive any of 
 certain conditions named in the policy, which conditions 
 are in the opinion of the legislators not in the interest of 
 the insured. But great care should be taken that the pro- 
 visions of the standard policy which are favorable to the 
 insured are not also privileged to be waived. And, 
 after all, but little can be expected from such a privilege 
 for the reason, already stated, that the arguments in 
 favor of uniformity in concurrent policies are too potent to 
 be disregarded by the companies. 
 
 It appears, therefore, that regulation in fire insurance 
 not only extends to the extreme in some cases of pre- 
 scribing the very terms of policies, but also that it is 
 justified in doing so by the necessity for uniformity in 
 all concurrent policies in order that the liability of com- 
 panies may be so fixed and determined that tne insured 
 may not be involved in endless disputes and litigation. 
 And, it is often asserted, there is the same reason or an 
 equally strong reason for uniformity in the standard poli- 
 cies of .different States. But in this view we cannot 
 concur ; for the only objection to a want of uniformity 
 between standard policies of different States is that 
 
FIRE INSURANCE. 
 
 diverse policies make companies appear in the light of 
 granting privileges in one State that they do not grant in 
 another. This is a mere trifle and not to be compared 
 with the benefits that may be expected from the separate 
 studies of the proper provisions of standard policies by 
 legislatures and their committees, compared with mere 
 poll-parrot duplication by them of forms which have been 
 adopted in other States. 
 
REGULATIVE STATUTES. 
 
 FIRE INSURAN6E.-II. 
 
 No definition of the word insurance would be ade- 
 quate and fair which did not recognize it as a contract 
 for indemnity that is, for the replacing in kind or value 
 a thing which has been lost. It seems singular, therefore, 
 that any legislation should ever have been conceived 
 which would transmute such a contract into one of pure 
 gambling, by compelling a fire insurance company in any 
 case, to pay more than the actual value of the property 
 destroyed. That there should ever have been such legis- 
 lation is entirely owing to the unfortunate practices of 
 insurance companies, mainly in the adjustment of losses. 
 These practices, in a nut-shell, are as follows : the cause of 
 fires and the amount of loss are determined by dicker 
 between the insured and an adjuster, employed by the 
 company, or, in many cases where more than one company 
 is concerned, a number of adjusters. In practice, the 
 suspicion of fraudulent incendiarism has always been 
 employed as a means, not of escaping the payment of loss 
 entirely, but merely to cut down the amount to be paid. 
 The result of such a custom is that adjusters have been 
 keen to pounce upon even the remotest cause for suspi- 
 cion, or the faintest shadow of a possible defense, to 
 force a compromise with the policyholder instead of 
 
 109 
 
no REGULATIVE STATUTES. 
 
 paying the full amount claimed. This evil has prevailed 
 to such a degree that an adjuster considers himself exceed- 
 ingly unfortunate if, in any given case, he is not able to 
 effect a salvage for his company. 
 
 The consequence of such action is that the very men at 
 whoni the practice is supposed to be directed, viz : incen- 
 diaries, prepare for it by swelling the inventory of the 
 property consumed. On the contrary, innocent sufferer? 
 by fire find themselves altogether unprepared for the 
 trained adjuster. Because of these things, there has 
 arisen in every community a strong sentiment adverse to 
 fire insurance companies and to their methods of adjust- 
 ment. In several States this adverse sentiment has taken 
 the form of valued policy Acts which compel fire insur- 
 ance companies to pay the full amount of the insurance 
 whenever insured buildings are destroyed, without regard 
 to what their value may have been. These laws proceed 
 on the assumption that insurance agents in placing insur- 
 ance judge of the value of property and they make this 
 j udgment final and binding on the company. It is scarcely 
 necessary to say that the assumption is erroneous, and that 
 the average person who can be secured as a fire insurance 
 agent is not capable of judging of the value of properties 
 with anything like exactitude, and that no person, however 
 capable, could conceivably know so much about the value 
 as the owner in most cases. 
 
 It is generally conceded, and might easily be demon- 
 strated, that the loss by incendiary fires in the United 
 States has a deal to do with causing the excessively high 
 fire insurance rates which obtain in this country. It is 
 also demonstrable that States which have enacted valued 
 policy laws have very considerably increased the insured 
 fire waste. They would doubtless have still more increased 
 the fire waste if it were not for two things ; first, that the 
 law is not enforced except at the option of the claimant 
 
FIRE INSURANCE. in 
 
 and that the larger number of adjustments are made by 
 agreement between the insured and companies, without 
 reference to this law or the courts ; and, second, that the 
 law does not apply to personal property, as indeed it could 
 not without being absolutely ridiculous. 
 
 The evil which valued policy laws were intended to cure 
 is a real one and should have been taken hold of in a more 
 intelligent manner and attacked with the co-operation of 
 the companies. At this writing, it appears as if, on the 
 initiative of the city of Boston, followed by the State of 
 Massachusetts, some actual progress was to be made in 
 dealing with the evils. This initiative consists of the 
 appointment of fire marshalls whose duties are to 
 determine the causes of fires and to bring incendiaries 
 to justice. The establishment of such offices should be 
 supplemented by legislation prohibiting companies from 
 compromising or adjusting claims until the causes of fires 
 have been determined. This policy would take away the 
 excuse and incentive for whittling down honest claims 
 against insurance companies. 
 
 It may, possibly, scarcely be a subject for legislation, 
 but the insurance companies could readily assist in remov- 
 ing all prejudice against themselves on account of adjust- 
 ments if they would seek to establish the arbitration 
 principle in determining values of property. It might be 
 possible to secure such legislation as would make the 
 findings of arbiters final and beyond appeal, and compel 
 the parties to submit claims to arbitration. In the absence 
 of such laws, there is little doubt that most claimants 
 would be pleased to adopt this method. In lieu of that, the 
 companies could probably make their adjustments more 
 impersonal and, consequently, more satisfactory, if they 
 combined to employ a force of adjusters for each State who 
 would appear in a more or less public and semi-official 
 character, just because they were not employed by any 
 
Iia REGULATIVE STATUTES. 
 
 individual company. These things are mentioned as 
 means by which companies could assist in preventing ill- 
 advised legislation. If they do not take the initiative in 
 so doing, it might be the part of wisdom for the State to 
 constitute a board of adjusters and require all adjustments 
 to be made by and through them. Such legislation may 
 appear to be somewhat tyrannical, but it cannot be denied 
 that there are grave reasons of public policy why some- 
 thing should be done. Under present systems, many 
 millions of dollars of property belonging to innocent 
 persons, who are often uninsured, are annually incidentally 
 destroyed by incendiary fires, against which the present 
 methods of adjusting losses interpose no serious obstacle ; 
 and millions more are unnecessarily paid in increased 
 rates because of incendiarism. It is decidedly against 
 the interests of the State that such conditions should be 
 permitted to continue and it might properly interpose 
 if the companies do not evince a disposition to correct the 
 evils themselves. It goes without saying at any rate, that 
 the State might much more properly thus interpose in a 
 manner consistent with the true nature of insurance as an 
 indemnifying contract than in a manner so inconsistent 
 as are valued policy laws. The proper and only effective 
 way to suppress incendiarism is to make it unprofitable 
 and unpopular because unprofitable- 
 
REGULATIVE STATUTES, 
 
 FIRE INSURANGE.-III. 
 
 A desire to avoid converting fire insurance into a gam- 
 bling instead of an insurance contract has prompted fire 
 insurance companies at times to insert clauses in their 
 policies, providing that in event of fire the companies 
 should not be responsible for more than two-thirds the 
 value of the property destroyed. This clause is com- 
 monly known as the " two-thirds value clause," and has 
 sometimes been strenuously objected to. The protests, 
 however, have usually been to the effect that the insured 
 did not know of the existence or of the effect of the clause 
 until after the loss had been incurred. Few persons have 
 had the hardihood to assert that when such a clause is 
 agreed upon by the parties and fully understood, it 
 involves any hardship. It may be true that in some 
 cases the insured was not aware of the existence or of 
 the effect of the clause ; but such a condition of facts 
 should' not be held to render it of no effect unless it is 
 clear that he could not with ordinary care have known 
 of its presence. A slip has generally been pasted on the 
 face of the policy, stating in large, clear type just what is 
 meant. Such being the case, there is little excuse for 
 want of knowledge of its existence or meaning, much 
 
 "3 
 
114 REGULATIVE STATUTES. 
 
 less excuse, for instance, than for like ignorance of the 
 existence or effect of a clause printed upon the policy. 
 
 This being true, such a condition ought to be upheld 
 unless it is plainly inconsistent with the law or against 
 public policy. Public policy, so far from being opposed to 
 such a clause, appears to Urge its adoption as a general or 
 universal rule, inasmuch as insurance companies should 
 be confined to indemnity contracts as distinguished from 
 gambling contracts. This is especially applicable to con- 
 ditions which may prevent incendiarism for the amount 
 of the insurance. Notwithstanding this evident agree- 
 ment of the clause with the public interest, laws have 
 several times been proposed and bills have been favorably 
 considered which would prohibit the insertion of such 
 conditions in policies. The only powerful argument in 
 favor of such legislation is the desirability of uniformity, 
 coupled with the assertion that, the general practice being 
 not to have such conditions, one is thrown off his guard 
 and does not look for it. This state of facts, if admitted 
 to exist, might call for a reform of the common practice, 
 so that all policies should contain such conditions, rather 
 than the prohibition of such a safeguard. 
 
 All fire insurance policies on a certain class of hazards 
 are supposed to cover a similar hazard, both as to kind 
 and as to degree. Especially is this true, for instance, 
 of policies issued upon the same property. As is well 
 known, the premiums for fire insurance are computed as 
 percentages upon the sum insured, without regard to the 
 value of the property covered. But it is decidedly not 
 true that the risk of loss is the same to the insuring com- 
 pany in each of the following cases, viz : When the 
 property is insured for one-tenth of its value and when it 
 is insured for three-fourths its value. A loss might easily 
 occur which would be total as to the former insurance, 
 but would be only partial as to the latter insurance, 
 
r LIFE INSURANCE. 115 
 
 This means that there is a diminishing increase of the 
 probability of, loss, starting from a very low amount of 
 insurance and proceeding to about the point where the 
 value of the property and the amount of insurance so 
 nearly coincide that the moral hazard of incendiarism is 
 interposed. This means, that improperly handled, on a 
 property worth $100,000, a company could afford to write 
 each $10,000 insurance for a lower premium than the 
 preceding $10,000, up to about the ninth $10,000, for 
 instance. If single companies took entire lines in most 
 cases, just such a treatment of the problem would doubt- 
 less answer. 
 
 But companies do not ordinarily insure entire lines and 
 the only practicable plans to deal with the problem that 
 present themselves, are' : either to make a falling rate on 
 the whole risk, according as the aggregate insurance 
 rises, up to a certain limit, or to make a reduced rate on 
 the whole line in consideration of the insured agreeing to 
 keep his insurance up to a certain percentage of the value. 
 There have been cases of the application of the former 
 method, but it is plainly inapplicable to most situations 
 in insurance practice. On the contrary, the plan of 
 requiring the insurance to be kept up to a certain limit is 
 applicable to nearly all cases where, by reason of a multi- 
 plicity of small losses, a full line of insurance is desirable. 
 
 The principal difficulty about this plan is to enforce its 
 provisions. The most common method of doing this is 
 by a co-insurance clause, visiting the penalty upon the 
 insured that, if a loss occurs and it appears he has not 
 secured the agreed proportion of insurance, he shall be 
 deemed a co-insurer for the unsecured amount and shall 
 bear that proportionate part of the ascertained loss. For 
 instance, suppose that the clause, as it usually does, 
 requires the insured to carry an insurance equal to three- 
 fourths the value and that, when a fire occurs, it is dis- 
 
Ii6 REGULATIVE STATUTES. 
 
 covered that he has an insurance of but one-half the 
 value ; then, since one-half is two- thirds of three-fourths, 
 he will be a co-insurer to the amount of one-third of any 
 loss. In other words, the companies will be liable for 
 only two-thirds of the ascertained loss. If the loss is 
 total, this will make no difference since the amount of 
 their policies was but one-half the value ; but if the loss 
 be only partial, then the clause may make a difference. 
 
 Several objections have been entered against the per- 
 mission of the use of this clause. The principal claim, 
 however, is that it is not well understood by most per- 
 sons, even when they have consented to its use. It must 
 be conceded that its operations are somewhat complex, 
 and that they might not be clearly understood by even 
 a man of fair intelligence. But this much is, doubtless, 
 understood by practically all in whose policies such 
 clauses appear, viz : that they are under obligations to 
 carry insurance up to a certain percentage of the value. 
 They may not see just how the penalty will apply, but 
 they do know what is expected of them, and, if they act 
 in good faith, there is not likely to be a penalty. Such 
 policies are usually issued at a reduced rate or it is speci- 
 fied that, only with such a condition, will they be issued 
 at all ; consequently, the insured is sufficiently advised of 
 the importance which the companies attach to his carry- 
 ing a certain proportion of insurance. 
 
 It is natural, perhaps, that some who consider the mat- 
 ter superficially only, should protest that there is a fatal 
 inconsistency in insisting upon the privilege of two-thirds 
 loss clauses on the one hand and of three-fourths value 
 clauses on the other. Their protest will rest upon the 
 argument that if it is desirable to limit the amount of the 
 insurance to two-thirds the value, it cannot be desirable 
 to compel one to carry more than that, namely : three- 
 fourths the value. The answer is that these clauses fit 
 
LIFE INSURANCE. 117 
 
 very different cases, the two-thirds loss clause the case of 
 insurance on small properties where the one-third margin 
 is not many dollars and the three-fourths value clause 
 the case of insurance on large policies where one-fourth 
 margin is many dollars and where the tendency is to 
 carry under-insurance. Over-insurance is at once against 
 the companies' interest and the public interest because it 
 fosters incendiarism ; under-insurance is likewise against 
 the companies' interest because the ratio of losses to pre- 
 miums is heavier and also, to a limited degree, against the 
 public interest as it gives an unfair advantage in rates to 
 those who under-insure as against those who fully insure. 
 Both the companies' and the public interests are best 
 served by a reasonably full assurance, a sufficient margin 
 under the whole value. 
 
REGULATIVE STATUTES, 
 
 FIRE INSURANCE. IV. 
 
 No department of insurance has become so popular and 
 so generally patronized as fire insurance. In commercial 
 development its progress is unequalled by even life insur- 
 ance, successful as the latter has been. But not so 
 much can be said for it in the matter of scientific devel- 
 opment. This is owing very largely, if not entirely, to 
 the complexity of the hazard. In the first place, almost 
 every fire hazard is composed of three separable elements. 
 First, the risk of fire from within, known as the internal 
 hazard ; second, the risk of fire from the immediate en- 
 vironment, known as the exposure hazard ; and third, the 
 risk of fire from remote environment, known as the 
 conflagration hazard. In the making of rates and in 
 computation of fire insurance reserves, both of which 
 things are empirical and not scientific, the internal 
 hazard and the exposure hazard are alone taken into 
 account. Only the most prudent and cautious of the 
 managers of companies make a provision by holding a 
 large surplus to meet the periodical conflagrations, caused 
 by the dense crowding in large cities or by prairie or forest 
 fires. 
 
 119 
 
120 REGULATIVE STATUTES. 
 
 An effort has been made within the past few years to 
 reduce rate-making in fire insurance to a science, by pre- 
 paring a schedule of minimum rates for the average risk 
 of each class, covering the internal hazard only, and adding 
 thereto or subtracting therefrom, according to certain 
 fixed schedules, for anything which is esteemed to 
 diminish or increase the hazard ; thus building up a rate 
 with due consideration for its component parts. 
 
 The difficulty which has been encountered is that, 
 despite the existence of fire insurance now for nearly two 
 centuries in the commercial nations of Europe and 
 America, there are less statistics concerning its intricate 
 and involved hazards than concerning any other branch 
 of insurance, unless it be personal accident and individ- 
 ual illness insurance. This is owing to the indisposition 
 of companies to classify their experiences and make them 
 public. There are so many fire insurance companies with 
 such varying standards of management and there are so 
 many jealousies between them that it has been impossi- 
 ble to get them voluntarily to so combine their statistical 
 wealth as to furnish a thorough scientific basis for rate 
 and reserve computations. 
 
 The empiricism of the present system, even when im- 
 proved by the recent advance of schedule rating, is very 
 evident when one deals with reserves. The system at 
 present existing is to charge against a company one-half 
 of its annual premiums as a reserve on the basis that the 
 same has not been earned and will be needed to pay 
 losses under unexpired policies. Suppose there are two 
 companies, one of which is prudently charging a pre- 
 mium in excess of what it thinks will certainly be needed, 
 the other imprudently charging one-half the premium 
 demanded by the former company. According to the 
 present system of computing reserves, the company 
 charging adequate premiums will be made to show a 
 
FIRE INSURANCE. Mi 
 
 liability in proportion to the actual hazard just twice as 
 large as the company charging inadequate premiums. 
 It has thus happened several times that companies which 
 started out on this rate-cutting program, have been figured 
 out solvent for years, when by any sane system they would 
 have been found insolvent almost from the day they 
 began operations. The mere fact that companies which 
 charge widely different rates, as has often happened, for 
 precisely the same protection, is of itself evidence of the 
 unscientific character of the rate-making of the present 
 day ; and the uniformity which generally exists is, on the 
 contrary, no proof whatever that the rates are being 
 scientifically adjusted. This uniformity is the result of 
 combination and agreement ; and wherever really effec- 
 tive measures have broken up these combinations and 
 agreements, rates have fallen into chaos and steadily 
 tended lower and lower. 
 
 Insurance is so important a feature of social economy 
 that the State should no longer permit the foolish fears 
 and jealousies of companies to prevent such a complete 
 compilation of fire insurance statistics as will make it 
 possible to change fire insurance from mere guess work 
 to scientific prevision within the next two decades. This 
 will, to be sure, involve a tremendous amount of labor, 
 but the labor need not all be performed as the compilation 
 goes on. The mere calling for a mass of information con- 
 cerning losses on certain classes of risks in comparison 
 with amounts insured and number of risks, and of losses 
 by certain causes in each class, as compared with the 
 number and amounts of risks subject to that cause of loss, 
 would within a few years furnish such a body of informa- 
 tion as would be gladly attacked by independent actuaries 
 and statisticians. There is little doubt also that the com- 
 panies, once the information has been drawn out of them, 
 will see that their own interest lies in making the very best 
 
122 REGULATIVE STATUTES. 
 
 possible use of it. Society is entitled to demand such 
 publicity of that information as is conducive to the 
 diminishing of fires, by removing the causes therefor, and 
 also to the equitable adjustment of fire insurance rates. 
 
REGULATIVE STATUTES, 
 
 LIABILITY INSURANCE. 
 
 Other forms of property insurance, such as tornado and 
 wind storm insurance, hail insurance and such property 
 insurance as is embraced in steam boiler insurance, may 
 be passed over in this connection almost entirely without 
 comment, These forms of insurance are at present so 
 little developed that it would be difficult to prescribe regu- 
 lative laws which would apply to them with any apposite- 
 ness. Moreover, so far, po evils have appeared in con- 
 nection with these lines of insurance that call for any 
 special regulation. The principal thing at present requi- 
 site for them is enabling and fostering legislation. 
 
 On the contrary, as has hitherto been pointed out in 
 these papers, several very serious evils have attended the 
 rapid development of liability insurance. The nature of 
 liability insurance is different from that of any other class 
 of insurance in that it insures a man against the conse- 
 quence of his own laches, negligence or tort. It is but 
 one degree removed from insuring a man against the con- 
 sequences of his own misdemeanor or crime. Naturally, 
 therefore, it requires to be closely watched, if permitted 
 at all, and to be sternly regulated, so that by means of 
 it no man shall escape wholly the consequences of his 
 own neglect or misconduct. It has also been pointed 
 out that adjustments of losses under this form of insur- 
 
 "3 
 
124 REGULATIVE STATUTES. 
 
 ance, is a protracted and frequently heartless process. 
 This is owing partially to the fact that the claimants are 
 not really the customers of .the insurance companies, bu^ 
 more especially to the circumstance that in almost every 
 case there is room for dispute as to the liability of the 
 insured, and consequently, of the insurance company. It 
 has been seen in these papers, during the discussion of 
 the adjustment of losses of fire insurance companies, that 
 out of the possibility of disputing the validity of claims 
 there has arisen an exceedingly pernicious system of com- 
 promising them. In liability insurance this has reached 
 its worst possible stage. At this day, in consequence of 
 the vast number of disputed claims and the enormous 
 amounts involved, it is next to impossible for even the 
 most expert to judge whether a company transacting 
 this business is solvent or insolvent. 
 
 In former papers of this series, the opinion has been 
 expressed that, if the matter could be brought to a test 
 in the courts, it is altogether probable that this class of 
 insurance would be abolished as in contravention of the 
 settled principles of law, This is entirely owing to the 
 circumstance that liability policies for the most part cover 
 only claims for which the insured himself is liable. It is 
 not believed that policies which would cover all accidents 
 without regard to the liability of the person nominally 
 insured, even though it should furnish him incidentally 
 the protection which he desires, would be equally in 
 contravention of sound legal principles. The reason for 
 this is that while to insure the owner of a passenger ele- 
 vator against the consequences of criminal carelessness on 
 his part, would be clearly against public policy, as tend- 
 ing to increase such carelessness ; on the other hand, to 
 insure all persons entering and riding in his elevator 
 against injury while therein, without regard as to whether 
 he was liable or not because of neglect, would be entirely 
 
LIABILITY INSURANCE. 125 
 
 consistent with public policy and this, even though inci- 
 dentally it should relieve the owner from liability. The 
 reason for this is apparent. It is in line with public 
 policy, that citizens of the republic should not become a 
 public charge because of disablement through accident ; 
 and that, whether they would become a public charge or 
 not, they should not be deprived of the productive value 
 of their time. Consequently, any form of insurance 
 which would bring it about that the large number of 
 persons who are injured every year in passenger elevators 
 in the United States, should surely and fully be reim- 
 bursed for such an injury, would be a public benefit. 
 
 This principle applies with even greater force to the 
 case of workirigmen engaged in occupations that are 
 dangerous to life and limb. In the construction of every 
 great building, there is, in addition to the cost which 
 appears in the outlay for materials and labor, a large cost 
 of human life and of time of workingmen disabled tem- 
 porarily by accident. At present this loss falls entirely 
 upon the individual workingmen, except in such degree 
 as they are able to prove that it was occasioned by the 
 neglect of their employers. Consequently, it does not 
 appear in the price of the building, although it is really a 
 legitimate part of its cost. Now, if it could be brought 
 about that every workingman engaged in the construc- 
 tion of these buildings was insured against such acci- 
 dents without regard as to whether his employer is at 
 present legally liable or not, the result of it would be that 
 the cost of this insurance would be added to the price of 
 buildings and the buyers of buildings would pay, as they 
 should, this item of cost, viz : the cost in human life, 
 and in loss of time through accident. Of course the result 
 of this would be beneficial to society. It would also be 
 beneficial to employers of labor, in that many claims 
 which are now sustained against them would doubtless 
 
126 REGULATIVE STATUTES. 
 
 not be then sustained. It would not be any great disad- 
 vantage, either, if the result of this class of insurance was 
 completely to manumit employers from any liability, 
 and if the only penalty which employers should be com- 
 pelled to pay for criminal carelessness thus became a 
 criminal penalty, consisting of fine or imprisonment, 
 imposed by society for the wrong-doing of the employer. 
 There is a very evident tendency at this writing among 
 liability insurance companies to shift their position from 
 the mere insurance of employer against claims by 
 employes to a more complete insurance of workingmen 
 which also recognizes the workingmen as patrons of the 
 companies and under which there will not be anything like 
 so much liklihood of dispute as to the liability. The com- 
 panies keenly feel the embarrassment arising from the 
 large number of unsettled lawsuits which continually 
 hang over them. Moreover, they find that the average 
 employer who would be likely, if uninsured, to dispute the 
 Validity of claims against him to the last ditch, is, when 
 insured, disposed to quarrel with the company for doing 
 the same thing and in many cases to quietly offer all 
 assistance possible to claimants in establishing their cases. 
 Consequently, notwithstanding the fact that insurance 
 companies generally have shrewder lawyers and sharper 
 adjusters than the employers had before them, it con- 
 stantly happens that claims are enforced against them 
 which would never have been enforced against the 
 employers, if not insured. It is well known also that 
 the fact that the suit is really against an insurance com- 
 pany will influence the average juryman in determining 
 his verdict. Consequently, it is becoming entirely plain 
 to the insurance companies that it is to their interest to 
 so extend this form of insurance as to cover not merely 
 claims for which the employer is liable but also all acci- 
 dents occurring while workingmen are at their posts. 
 
LIABILITY INSURANCE. 127 
 
 This tendency should be encouraged by legislation. It 
 is almost wholly beneficial ; and, in its working out, will 
 doubtless result in a more just distribution of the real 
 costs of production. It is true that, at present, it is mis- 
 used in many cases by companies, inducing employes to 
 pay for this insurance and then rebating as a commission 
 or otherwise to the employer a part or all of the pre- 
 mium for his liability insurance which is included in the 
 policy. This evil perhaps cannot be avoided at this stage 
 of the development of the business. The cost of this 
 insurance should, as we have seen, be added to the price 
 of the commodities purchased as it is properly a part of 
 that price. To deduct it from the wages of the working- 
 men, is simply to distribute a cost which fell upon single 
 individuals unjustly, so that it now falls upon the whole 
 body of workingmen more or less evenly. This, while 
 still unjust, is better than the old condition at any rate. 
 Incidentally, it may work out in either of two ways, viz : 
 by the w T orkingmeii obtaining a higher rate of wages 
 because of this addition to their standard of living or by 
 such modifications in the law and customs of the country 
 as shall make this class of insurance obligatory, taxing 
 the cost of it primarily upon the employer who would 
 immediately shift it to the purchaser of the product, 
 increasing by so much the price of the product. 
 
REGULATIVE STATUTES, 
 
 STATE SUPERVISION. 
 
 The remaining branches of insurance have so little 
 developed that it would be practically impossible to mark 
 out any special lines of regulation to be pursued. These 
 will have to develop as these branches of insurance them- 
 selves develop ; consequently, we turn from the subject of 
 regulative statutes to the related subject of the adminis- 
 trative officer, who is to do the regulating. 
 
 This official is known in different States by various 
 names, such as superintendent of insurance, insurance 
 commissioner and the like. The first officers of this 
 character in this country were the insurance commis- 
 sioners of the State of Massachusetts. There were two 
 of them ; and Elizur Wright, one of the most distin- 
 guished actuaries and philanthropists of our age, was one 
 of these. This commission, as originally appointed by 
 the legislature, was, perhaps, hardly expected to become 
 permanent, but it was found that there was so much to 
 regulate and that the interests involved were so important 
 that it seemed requisite to continue the office. After 
 several years the number of commissioners was reduced 
 to one and Elizur Wright continued in this office for a 
 long time, during which the lines that insurance super- 
 vision was to pursue, were pretty well mapped out. 
 
 At the first, necessarily a considerable measure of dis- 
 cretionary power was given the commissioner. The valu- 
 ation conditions were originally adopted by the com- 
 
 1*9 
 
130 REGULATIVE STATUTES. 
 
 mission in Massachusetts without legislative action. 
 These were the now well known standards of the Actu- 
 aries' Table and 4 per cent, interest. The adoption of 
 these standards was afterwards approved by the legisla- 
 ture ; and, although Elizur Wright expected them to be 
 merely temporary, their subsequent adoption by various 
 State legislatures has made them the standards throughout 
 the United States, although the seventeen offices' table 
 was long ago eschewed in the land from which it came. 
 
 The duties of an insurance commissioner may be classi- 
 fied much as we have classified the legislation which he 
 is to administer. Thus he has first to see that the condi- 
 tions of the enabling statutes are complied with when 
 companies are organized. It is also his business to see 
 that the prohibitive and restrictive statutes are carried 
 into effect. In doing this he should co-operate with the 
 States' attorneys in bringing about the prosecution of 
 offenders, arid he should also promptly report to the 
 proper prosecuting officer any dereliction under these 
 statutes of which the penalty is forfeiture of charter or 
 dissolution of the corporation. 
 
 But by far the most important office he has to perform 
 is to give force and effect to the regulative statutes of the 
 State, seeing to it that the business of insurance corpora- 
 tions is carried on as contemplated by the law. In order 
 to accomplish this, it is, of course, part of his duty to 
 familiarize himself with the affairs of companies by 
 frequent examinations as well as by requiring pe- 
 riodical reports in which all statistics and facts nec- 
 essary to a proper comprehension of the conduct of the 
 companies' affairs should be dravvii out. It is also 
 a part of his duty in this connection to give to the public 
 as land-marks to those who patronize insurance compa- 
 nies, such full statistical information relative to the con- 
 dition and operations of the companies as will enable the 
 
STATE SUPERVISION. . 131 
 
 public not merely to decide concerning their relative 
 strength, but also to decide concerning the relative desira- 
 bility of their policies. For this purpose it will be neces- 
 sary as to all companies issuing mutual or participating 
 policies to call forth such information as will enable pros- 
 pective purchasers to determine for themselves, as near 
 as may be, the relative profitableness of investments in 
 such policies. 
 
 The insurance commissioner should be a purely adminis- 
 trative and in no case a judicial officer. The frightful 
 mismanagement of the New York department under 
 several superintendents and the misconduct of many 
 other State insurance officers may be traced clearly and 
 unmistakably to the abuse of the discretion which was 
 lodged in them. There is no reason why any such dis- 
 cretion should longer be lodged there. 
 
 The laws which they are to administer should be clear 
 and mandatory. For instance, concerning the organiza- 
 tion of new companies, the law should clearly state what 
 is* necessary in order to organize ; and, if this is complied 
 with, no discretion should be given to the insurance com- 
 missioner to refuse or delay the necessary authority. 
 Moreover, in case he should thus refuse and delay, there 
 should be some means of obtaining a hearing by the 
 courts, reviewing his decision. In the same manner, it 
 should be possible to call him before the courts to account 
 for his conduct in any case of permitting companies to 
 organize in violation of law, without complying with the 
 necessary conditions or for the purpose of conducting an 
 illegal business. 
 
 Concerning restrictive- statutes, also, the commissioner 
 should be held accountable in the ordinary courts of law 
 for neglect, when supplied with the proper evidence, to 
 refer these matters to the prosecuting attorneys for atten- 
 tion and to co-operate with them in enforcing the law. 
 
133 REGULATIVE STATUTES. 
 
 In the same manner, again, whenever it is brought to 
 the -attention of the commissioner, with proper evidence, 
 that companies are carrying on their business in a man- 
 ner not in compliance with law, are exceeding their 
 powers or are insolvent and are permitting their obliga- 
 tions to go to protest, it should be incumbent upon him to 
 take action by referring the matter to the prosecuting 
 officers and by co-operating with them in seeing that the 
 law is complied with. 
 
 Concerning each of these things, there should be no 
 discretion ; and any attempt on the part of the commis- 
 sioner to exercise discretion should, when it comes to the 
 attention of a court of record, be sufficient reason for a 
 suspension from office by that court, until all the facts 
 are considered and his guilt or innocence determined. 
 
 Moreover, the companies should themselves have access 
 to the courts with a speedy hearing, whenever they con- 
 sider that the decisions of the commissioner are not in 
 accordance with law arid are injurious to them and their 
 interests. This right of appeal to the courts should also 
 be granted to companies from without the State 
 whether they have already been admitted or not. The 
 abuse of the discretion unfortunately granted them by 
 certain commissioners during recent years should be 
 sufficient evidence of the necessity for such an appeal, 
 even though the very nature of the case did not make 
 it desirable. 
 
 At the present time the commissioners of most States 
 have such discretion that they can, with comparative im- 
 punity, permit companies to be organized to transact 
 illegal business, may wink at constant violations of the 
 restrictive and prohibitive statutes of the State and may 
 also fail to carry out the provisions of the regulative 
 statutes. This comparative impunity arises from the fact 
 that the only way to reach these officers ordinarily, is 
 
STATE SUPERVISION. 133 
 
 through an impeachment. Indeed, in at least one State, 
 it is not sure that there is any means of reaching him. 
 The legality of an impeachment has been itself im- 
 peached and it is doubtful whether it would hold at law. 
 The result of such legislative neglect is that, during his 
 term of office, the insurance commissioner is the most 
 irresponsible officer in the whole roster. 
 
 When there is added to this absolutely unnecessary 
 discretion the further sole power to decide whether 
 receivership proceedings shall be begun against insurance 
 corporations, it must be conceded that the power to 
 abuse the office against the interests of the people is mag- 
 nified to an extraordinary degree. Of course, the power 
 to move for a receiver should be lodged in the insurance 
 commissioner, but that this power should be exclusive is to 
 deprive every judgment creditor and in fact all parties at 
 interest of the most valuable means of self-protection. 
 In no case has this power failed to be abused and to be 
 exercised, not for the benefit of the public but for the 
 benefit of rascally managers who have lined their own 
 pockets while the indebtedness of the companies intrusted 
 to their care is piled up to many times the resources. 
 Establishment of insurance supervision is not undertaken 
 for the purpose of depriving the people of those means of 
 protecting themselves which they already possessed, but 
 is certainly for the purpose of adding to the imperfect 
 means which they already possessed, the additional safe- 
 guard of a watchful public officer with better access to 
 sources of information than they can possibly have. This 
 purpose is completely defeated when the commissioner is 
 vested with such authority that people who have been 
 injured by the misconduct of companies are compelled to 
 appeal to him for redress, without having the right to 
 compel him to take action in their behalf. 
 
REGULATIVE STATUTES. 
 
 STATE INSURANCE. 
 
 Insurance is essentially a community function. It is 
 not merely to the interest of an individual, for instance, 
 that his property should not be destroyed by fire and he 
 thus be reduced to poverty, but it is also to the interest of 
 the community that this should not take place. The com- 
 munity is interested in seeing to it that no individual is 
 deprived of his property except as a result of his miscon- 
 .duct. The burden of supporting those individuals who are 
 brought to pauperism by the loss of property inevitably 
 falls upon the community. Moreover, the pauperization 
 of individuals results commonly both in the deterioration of 
 their own characters and also in damage to their posterity, 
 all of which things are serious injuries to the community. 
 
 The state of affairs which would be most healthful in a 
 community would be that each individual was certain to 
 receive the exact reward for his own efforts, without dim- 
 inution through bad luck or increase through good luck. 
 In a community where such a state of affairs existed, the 
 incentive to right action would on the whole be precisely 
 sufficient and the incentive to wrong action would not 
 exist at all. Insurance is an effort to equalize conditions 
 and to bring about this ideal state of affairs. At pres- 
 ent, having been only in the earlier stages of evolution, it 
 is of course imperfect ; but it is doing a good work in that 
 direction. As now designed, it is only roughly equalizing 
 conditions, and is in fact aimed merely to ward off most 
 disastrous losses, such as by fire, wind-storm or other very 
 destructive elements. Moreover, not every individual is 
 protected by insurance. It has grown, as it perforce must 
 have grown, through its earlier stages as a purely volun- 
 tary system, and by that means has convinced by far 
 
 135 
 
136 REGULATIVE STATUTES. 
 
 the most of the wise and prudent citizens of civilized coun- 
 tries of its merits and desirability. No man of intellect 
 thinks of an insurance premium as a gratuity or contribu- 
 tion for the benefit of others ; the value of protection, even 
 though no loss occur, is now generally understood. 
 
 What is not yet quite understood is that the necessities 
 of the community do not really permit that insurance 
 should be a voluntary affair. For the purpose of bringing 
 about conditions most conducive for its well-being, the 
 community is warranted in insisting that every individual 
 should contribute his portion of the net loss by ill luck, in 
 consideration of protection to himself. It is quite as much 
 the business of the community to see to it that no individ- 
 ual receives more than the reward for his efforts in the 
 form of good fortune, as it is to see that individuals are not 
 crushed by misfortune. The fact is that most strokes of 
 fortune are two-faced, what is good luck to one individual 
 being bad 'luck to his neighbor. Thus, the destruction of 
 a large part of any commodity would result in the increase 
 of the price of what remains, this being ill fortune to those 
 who possessed the part that was destroyed and at the same 
 time good fortune to those who possessed the part that was 
 not destroyed. From this homely illustration, it will be 
 observed that the fortunate would not really contribute 
 anything for insurance out of what would have been their 
 reward if no part of the commodity had been destroyed. 
 What they really would do is to contribute the benefit 
 which would have accrued to them through a good fortune 
 that was the ill fortune of their neighbor. Of course 
 there is a real loss to the community in any case, the com- 
 munity receiving less of the commodity for the money it 
 pays. 
 
 Outside of these general principles, which seem to con- 
 clusively demonstrate that insurance is really a community 
 or State function, and that as soon as the persons compos- 
 
STATE INSURANCE. 137 
 
 ing the community are educated up to the point of toler- 
 ating it, it should become compulsory, there are still other 
 considerations why some forms of insurance especially 
 should be taken over by the State. For instance, there are 
 forms of insurance which are so general in their application 
 and so difficult to apply, that anything like adequate 
 arrangements through private initiative are practically 
 impossible. For example, the most serious losses to indi- 
 viduals come under the category of personal insurance, 
 including illness, accident and the infirmities of old age. 
 It is almost impossible for private companies to cover these 
 hazards with any such completeness as to serve the pur- 
 pose of the community. In consequence the community 
 is already engaged largely in this form of insurance with- 
 out having the advantage of its being undertaken in a 
 business-like manner. Instead, it is put in the form of 
 charity, w r hich it is not at all, or at least ought not to be at 
 all. Our hospitals, almshouses and public institutions of 
 that character are all of the nature of insurance ; but, 
 instead of being wholly beneficial, as insurance is, they are 
 really deleterious to the best interests of the community. 
 The distinction is that he who receives a benefit from 
 insurance receives that which is his right and not charity. 
 The difference between a man living through a decrepit- 
 old age on an annuity due him from an insurance company 
 and a man equally decrepit living in an almshouse upon 
 the grudging charity of the community is all the difference 
 between right social conditions and wrong social condi- 
 tions ; and we have already reached such a point in statis- 
 tical information and actuarial skill that it would not be 
 impossible to devise a system of personal insurance which 
 should cover from before one's birth till after one's death 
 so completely that no individual in the community could 
 fail to receive a fair reward for his efforts, with all the ele- 
 ments of ill fortune, including even the ill fortune of a bad 
 
138 REGULATIVE STATUTES. 
 
 heredity, equalized and thus shut out of the problem. 
 . Outside of this form of insurance, which, so far as I can 
 see, can never be undertaken with any prospect of great 
 success except by the action of the whole community, 
 there are other forms which can be successfully carried on 
 by private initiative but which in all probability could be 
 conducte'd in a far more efficacious and economical manner 
 by the State. One of these is fire insurance on buildings. 
 The State could, by appraising the value of buildings and 
 collecting a compulsory fire tax adjusted roughly accord- 
 ing to the hazards, give a very much more economical fire 
 insurance than is now given by companies. It would 
 probably wipe out the hazard of over-insurance on build- 
 ings completely, and would doubtless also reduce incendi- 
 arism to a minimum. The expense of collecting such a tax 
 of course is nothing compared with the present expense of 
 collecting fire insurance premiums. This system is in suc- 
 cessful operation in some countries already. 
 
 Life insurance, which is conducted by the regular com- 
 panies of the United States at so extravagant a rate of ex- 
 pense, could probably be carried on by the State to great 
 advantage either upon the voluntary system or upon the 
 compulsory system. An example of the success of the 
 system of voluntary State life insurance is given in the 
 experience of the life insurance department of New Zea- 
 land, which has, in competition with other excellent com- 
 panies, built up resources of more than $10,000,000. It is 
 also now doing more than one-half the new business annu- 
 ally transacted in the province. There has been no large 
 experiment in compulsory State life insurance ; but the 
 New Zealand department has constructed the best mortal- 
 ity table ever derived from statistics of the general popula- 
 tion, which shows beyond a question that on the compul- 
 sory plan it could insure all of the people of that colony as 
 they reach the age of 20 years at a net cost to each of far 
 
STATE INSURANCE. 139 
 
 less than it now costs on the volunteer plan, which is open 
 to selected lives only. It will be observed from this that 
 the price which we pay for permitting a part of the people 
 who are insurable under present standards to go without 
 insurance or to lapse insurance at will is to be unable to 
 protect the families and dependents of those who are not 
 up to the standard now required for insurance. It is very 
 evident, therefore, that the voluntary system of insurance 
 does not really serve the purpose of a community in that it 
 still leaves a large portion of the people exposed to disaster 
 through inability to obtain insurance, and another large 
 portion exposed to disaster through their obstinate refusal to 
 insure. And when it appears, as it does from this New 
 Zealand mortality inquiry, that the consequence of this 
 is that those who do insure pay a higher price for it than 
 needs to be paid, it is clear that it would be the part of wis- 
 dom for a civilized community to undertake insurance as 
 a public monopoly and on the compulsory plan. 
 
 It must be remembered, however, in connection with 
 these considerations, that there is nothing inherent in the 
 plan of State insurance that will certainly make it succeed. 
 Success will depend principally upon whether the ideas of 
 the people concerning insurance have evolved to the point 
 of a very general appreciation of its value. With a strong 
 public opinion supporting it, and with adequate scientific 
 investigation of the necessary data before undertaking it, 
 there is little question that State insurance would succeed 
 on the compulsory plan. But, wherever started under 
 misapprehension of its real character, without sufficient 
 actuarial examination of what is possible and without any 
 real demand for it on the part of the people, it would 
 almost certainly score a failure. Notwithstanding which, 
 there seems to be little question that it is the goal toward 
 which the evolution of both insurance and the commu- 
 nity is speeding. 
 
JUST PUBLISHED. 
 
 ems f the 
 
 BY MILES MENANDER DAWSON, 
 
 Mr. Dawson's lyric poems are here collected into a neat vol" 
 ume. Among them may be mentioned. " Solidarity," inspired by 
 the vicarious self-sacrifice of railway employees for the starving 
 workmen at Pullman, 111. This poem was at once translated into 
 German, and has girdled the world. Another celebrated poem, 
 " Sunset," is sure to charm. The range of the volume is great ; 
 from pathetic, half -humorous poems " in character " to patriotic 
 and humanitarian strains. 
 
 Two translations appear in the book, both from the Norwe- 
 gian. One is "Araljot's Longing for the Sea," the most eloquent 
 single poem of Bjornstgerne Bjornson, worthy to be classed with 
 Byron's "Apostrophe to the Ocean." The other is Henrik Ibsen's 
 longest lyric poem, regarded the forerunner of his great drama, 
 "Brand," and justly prized by all admirers of Ibsen. These 
 poems have never before appeared in the English language. 
 
 "Kickapoo River Ballads" form one division of the book. 
 The titles, such as " Seein' My Sweetheart Home," " Mandy's 
 Comin' Out," "All Along O' Him," and "Exac'ly," will indicate 
 the range. The quaintness of language, pleasing style, tender 
 pathos and exquisite humor will appeal to all. 
 
 The book closes with a lyric drama, " Kismet," of a new type, 
 which must be seen to be appreciated. The drama unfolds 
 itself through lyric poems, representing the emotions of the prin- 
 cipal actor. The dramatic force of this form of presentation 
 illustrates the excellence of the Greek drama, on which it is 
 modeled. It introduces a new idea in English poetry. The 
 story, itself, is a profoundly touching tale of human love, devo- 
 tion, suffering and desolation. 
 
 CLOTH, 160 PAGES, $1.00. 
 Popular Edition, PAPER, 25 CENTS. 
 
 THE HUMBOLDT LIBRARY, 
 64 FIFTH AVE., NEW YORK; 
 
THE EFFECTS 
 
 OF 
 
 FREE SURRENDER AND LOAN PRIVILEGES 
 
 IN 
 
 LIFE INSURANCE. 
 
 BY MILES MENANDER DAWSON. 
 
 A demonstration of the folly of attempting to make 
 profits from lapses. Republished from the Magazine of 
 the American Statistical Association, by the Associa- 
 tion. 
 
 PAPER, - - 35 CENTS. 
 
 AMERICAN STATISTICAL ASSOCIATION, BOSTON, 
 
 AMERICAN LIFE INSURANCE METHODS, 
 
 A SHORT, DISCRIMINATING DESCRIPTION OF THE 
 
 DIFFERENT FORMS OF LIFE INSURANCE 
 
 OFFERED IN THE UNITED STATES. 
 
 Republished from the Annals of the American Acad- 
 emy of Political and Social Science, by the Academy. 
 
 PAPER, - - - 15 CENTS. 
 
 AMERICAN ACADEMY OF POLITICAL AND SOCIAL 
 SCIENCES, PHILADELPHIA, PA. 
 
'ELSIE.' 
 
 A REALISTIC NOVEL FROM THE NORWEGIAN OF ALEX- 
 ANDER L. KJELLAND. 
 
 TRANSLATED BY MILES MENANDER DAWSON. 
 
 "A dainty little volume a story partakiug of the true Christmas flavor 
 which the Norwegian and Swedish authors so well know how to impart." 
 Progressive Thinker. 
 
 "There is a good deal of clever character sketching in the book." 
 Chicago Ledger. 
 
 "A very charming and profoundly sad story from a Scandinavian 
 author who is considered to be the ablest living novelist of Norway. * * * 
 Realistic, but not offensively so, and the characters are drawn in such 
 vivid colors that they seem to be living personages. This is the best short 
 story of the season, and should have a wide reading. In many parts we 
 are reminded strongly of Dickens ; but the Scandinavian is the more 
 powerful writer." Salem (Oregon) Independent. 
 
 "This beautiful story made the author's fame and established his repu- 
 tation. Kjelland's books are not merely successful as literary feats ; they 
 are popular, and " Elsie " is the most popular of all. * * * The style is 
 pleasing and entertaining, and the mechanical make-up of the book is 
 unique and dainty." Farmer's Tribune. 
 
 " In the matter of literary finish Kjelland is the highest exponent of 
 the language. His beautiful and realistic story of "Elsie" laid the first 
 foundations for his future fame, and established his reputation. It is 
 admirably translated by Mr. Miles Menander Dawsou, who follows the 
 story so closely that it loses none of its quaint style and crispness and 
 dramatic power. Elsie belongs to a class of girls who are forced by the 
 natural conditions of life around them to be bad. She is a representative 
 type of her class, and will perhaps be better understood in the future 
 from the author's interpretation of her actions. The tiny volume is full 
 of clever satire on the benevolent societies, which appear to exist as a 
 sort of punishment for those steeped in crime, and refuse to extend a 
 helping hand to those whose young lives are greatly endangered through 
 daily companionship with dangerous and evil disposed characters. It is 
 very easy to detect the writhing scorn with which Kjelland speaks of 
 those charitable organizations that are not charitably disposed, but only 
 exist as a means of bringing highly respected and eminent townspeople 
 before the public. He portrays life with insight into the motives that most 
 commonly govern the social world, and he depicts with the strength and 
 power of an artist the misery and wretchedness of homes where all that is 
 ennobling is crushed under the weight of daily burdens and toil. His 
 story is simple, but it is impressive, and it leaves no stone left unturned 
 that will assist in the expose of modern social tendencies toward the refor- 
 mation of the criminal." Boston Herald. 
 
 CLOTH, BLUE AND GOLD, 50 CENTS. 
 
 THE HUMBOLDT LIBRARY, 
 
 64 Fifth Ave., New York. Chicago, Charles H. Kerr & Co. 
 
ELEMENTS OF LIFE INSURANCE 
 
 BY 
 
 MILES MENANDER DAWSON. 
 
 This work is a non-mathematical explanation of life insurance 
 as practiced by the regular companies of the United States. It is 
 comprehensive, handling the subjects of rate-making, reserve- 
 computation and the like, and also the forms of policy contracts 
 and their significance. It will be found especially useful to 
 agents and to those who are beginning the study of insurance or 
 actuarial science ; for it is written in simple, untechnical lan- 
 guage, so as to be intelligible to any ordinary business man. 
 Thus an agent will find matters explained, just as he will wish to 
 explain them to his customers. Perhaps no higher recommenda- 
 tion can be offered for this work than that it has been enthusiasti- 
 cally received, and that it established Mr. Dawson's reputation. 
 The following short quotations from newspapers and others, 
 relative to it, will serve to illustrate its scope : 
 
 " Not an essential item in the operation of life insurance is missed." Jour- 
 nal of Commerce, Boston. 
 
 "The book is continuously and absorbingly interesting." Baltimore Under- 
 writer. 
 
 " The author is evidently one who thinks for himself. * * * It is the best 
 book of the kind ever published. " Insurance World, Wttsburg. 
 
 "Its style is simple, lucid and thought inducing." Courier-Journal, Louis- 
 ville. 
 
 "Why didn't you call it ' Insurance Made Fascinating.'''^^. 77. Chap- 
 man, Ph. I)., Pres. Oregon University and ex-Ass't Prof. Mathematics, Johns 
 Hopkins University. 
 
 "Mr. Dawson has a remarkably clear way of putting things."- Our Monthly, 
 Toronto. 
 
 "It is designed for the insurance agent and solicitor and for the general pub- 
 
 "No one can complain of not understanding the meaning of or any equivo- 
 cation in the expression of opinions." Walter C. Wright. Actuary, New Eng- 
 land Mutual Life. 
 
 "It is undoubtedly the clearest and most concise presentation of the funda- 
 mental principles of life insurance that has yet come to our notice. "Insurance 
 Herald, Louisville. 
 
 " His ideas are so plainly and fairly put that the book may be read and un- 
 derstood by the average business man." The Adjuster, San Francisco. 
 
 "It is a popular and very intelligible exposition of the principles and prac- 
 tices of the life business, and one of the best manuals of its kind which we 
 have seen from our American cousins." Finance Chronicle, London. 
 
 SENT POSTPAID ON RECEIPT OF PRICE, $2 00. 
 
 THE SPECTATOR COMPANY, 
 
 95 William Street, New York. 
 
ASSESSMENT l2ire INSURANCE. 
 
 BY 
 
 MILES MENANDER DAWSON. 
 
 The book clearly and unmistakably points out and demonstrates 
 the unscientific character of the faulty plans that have led to the 
 failure of many assessment companies in the past, and indicates 
 the perils to which the unwary purchaser is likely to expose him- 
 self and his beneficiaries if such misconceived plans are persisted 
 in. These defects, which it often puzzles the most skillful to 
 detect and expose, are here made so plain that the layman can 
 readily understand them. The book is not technical. It appears 
 to have been written mainly for the purpose of discovering a way 
 out of their difficulties for all the honestly conducted assessment 
 societies that find the crudities of their plan fatal to them. The 
 true nature and field of this class of insurance are mapped out 
 with great lucidity, and much valuable counsel is offered to the 
 managers of such societies. 
 
 To the growing number of students of sociology throughout the 
 country and the world, the work will be of great interest, and to 
 all investigators of this especial field of commercial and social 
 life it will be found of paramount importance. It contains in the 
 most condensed and graphic form, a complete account of one of 
 the most remarkable "movements of the age ; that of the people 
 toward mutual insurance organizations. The significance of such 
 phenomena is apparent in the tremendous hold that these organi- 
 zations have obtained upon the people. 
 
 "Deserves a large sale, and ought to find its way into libraries 
 as well as the hands of students of insurance and practical insur- 
 ance men." Walter C. Wright, Actuary. 
 
 "A good book." Insurance. 
 
 "Impartial in its statements, and a most interesting work." 
 Mutual Underwriter. 
 
 "Should be found in the library of every insurance man. "- 
 National Underwriter. 
 
 " Interesting and instructive." Coast Review. 
 
 "Deserves the attentive consideration of all engaged in life 
 underwriting as well as insurance." N. Y. Insurance Journal. 
 
 " I wish that it could be placed in the hands of every officer of 
 an assessment association. Its teachings would not only simplify 
 the work of an Insurance Commissioner, but would add greatly 
 to the stability of this class of organizations." Hon. Win. A. 
 Friche, Ins. Com., Wisconsin. 
 
 SENT POSTPAID ON RECEIPT OF PRICE, $1.60. 
 
 Assessment ii/e Instirance and Elements of Life Insurance (a 
 
 companion work on legal reserve life insurance. Price, $2 00). Cau be pur- 
 chased when ordered together, for $3.00. 
 
 Jl?e Spectator C^ompapy, 95 U/illfam St., ffeu; 
 
PRACTICAL LESSONS 
 
 IN 
 
 ACTUARIAL? SCIENCE, 
 
 BY 
 
 MILES MENANDER DAWSON. 
 
 (IN PRESS.) 
 
 This work is a technical text-book in Actuarial Sci- 
 ence, suitable for the use of students, and especially of 
 those whose mathematical acquirements do not extend 
 beyond Algebra. 
 
 It will supply simple formulas for every computation 
 ordinarily required of actuaries, from the construction 
 of mortality tables to the calculation of reserves and of 
 dividends. Many formulas not found in other books 
 will be exemplified. 
 
 No similar, elementary work in English exists. 
 
 THE SPECTATOR COMPANY, 
 
 PUBLISHERS, 
 
 95 WILLIAM STREET, 
 NEW YORK 
 
QYlifes (Ylflenanber 
 
 Con0uffin<j 
 
 11 BROADWAY, NEW YORK. 
 
 Expert Counsel in Insurance and Mutual or In- 
 stalment Investment matters for Companies and 
 Associations, State Departments, Agents and Fac- 
 tors, and Private Persons* 
 
 A Special Feature is advice to persons contem- 
 plating insurance or investment* Fees moderate* 
 No insurance placed or investments sold* 
 
 Auditing and examinations of insurance com- 
 panies and instalment investment companies only, 
 undertaken* 
 
 Particular attention given to devising and cor- 
 recting plans of new mutual companies* 
 
 Inquiries of correspondents given prompt notice 
 and replies* 
 
 References furnished on request* 
 
"THE PRINCIPLES OF INSURANCE LEGISLATION" first 
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