CORNELL LAW LIBRARY 1U4- Olorn^U 2Iam ^rliaal Slibratg Cornell University Library KF1164.A2P87 Addresses and papers on insurance. 3 1924 019 309 628 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019309628 ADDRESSES AND PAPERS ON INSURANCE BY RUFUS M. POTTS • « Insurance Superintendent, State of Illinois [Printed by authority of the State of Illinois.] /0ir79 SoiiNispi' & Bahnes, State Pkinters SprinopielDj III. . 1917. INTRODUCTIQN, This volume contains a few addresses, remarks and papers of InSuraiice Superintendent Rufus M. Potts selected from the files of the Insurance Department of Illinois. These deal both with the funda- mental and present-day conditions in various branches of Insurance. They were usually delivered or written in connection with special in- vesigation of the respective subjects dealt with. They are of such importaiice to the. insuring public, and copies have so often been requested, that it is deemed necessary to collect these public documents in a single volume for free distribution. The papers and addresses herein have been arranged according to the historical and logical relationship of the topics treated instead of the chronological order of dehvery. Consequently, "The Altruistic Utilitarianism of Insurance", which deals with the history and general theory of insurance, is first. This is followed by groups of addresses on Mutual and Fraternal insurance, on Workmen's Compensation, on Life Insurance, on Welfare or Social insurance, on Vital Conser- vation, on Fire insurance, fite insurance reform, fire prevention, recommendations concerning insurance legislation, etc. The administration of Superintendent Potts marks a distinct and progressive' period in the history of insurance, both in Illinois and the United States. A reading of these addresses and papers will give a vivid and comprehensive understanding of present-day conditions in the various branches of insurance, and the necessity for reform of the insurance business. Springfield, Illinois, January 1, 191?. RUFUS M. POTTS Superintendent of Insurance State of Illinois TABLE OF CONTENTS. Note. — If the reader does not find the specific subjects in which he is interested mentioned in this table of contents, he should examine the alphabetical index at the end of this volume. PAGE 1. THE AI^TBUISTIC TTTIKITABIAinSlffl Or INSURANCE. Address Before Forty-flfth Session of National Convention of Insurance Commissioners, September 17, 1916, Asheville, North Carolina 7 « 2. FEBFETUIT'S' OF FBATEBNAI.ISJffi. Address Before National Fraternal Congress, Minneapolis, Minnesota, August 25, 1915 22 3. ilESFONSE TO TOAST "II^I^INOIS." Banquet of the Illinois "Woodmen's Social Club, Hotel Sherman, Chicago, Illinois, February 12, 1916 31 4. MTJTUAIi INSUBANCE. Address Before Farmers' Grain Dealers' Association of Illinois at Bloom- ington, Illinois, February 10, 1916 36 5. ASSESSMENT INSUBANCE. Remarks Before 'National Convention of Mutual Life Underwriters, Third Annual Session, Hotel LaSalle, Chicago, Illinois, October 25, 1915 45 6. WOBKSCEN'S COMPENSATION AND I.ABOB CONDITIONS. Address Before "Via Christi Study Class of Woman's Missionary Social Union, Springfield, Illinois, October 27, 1913 51 7. WEI^COME TO CONFEBENCE OF HEAl^TH AND ACCIDENT UNDEB- WBITEBS. Delivered at the Annual Meeting of the Health and Accident Underwriters' Conference at the Hotel LaSalle, August 18, 1915, Chicago, Illinois 58 8. THE I.IFE INSUBANCE ACrENT OF THE FUTUBE. Address Delivered Before the Life Underwriters' Association of Chicago, January 6, 1916 •"64 9. TEE KIND OX- A.ire INSUBANCE SAl^ESMAN WHO AFFEAl^S TO ME. Address Before Life Insurance Agency Executives of Legal Reserve Com- panies of America, October 16, 1916, Hotel LaSalle, Chicago 69 10. STATE INSUBANCE. Address Before Conference on Life Insurance and Its Educational Relations at University of Illinois, April 3, 1914, Urbana, Illinois 72 11. INSUBANCE AS A METHOD OF FBESEBVINCt HUMAN WEILFABE. Remarks Before The Life Assurance Educational League, at Hotel LaSalle, Chicago, October 17, 1916 80 12. WEIiPARE (SOCIAI.) HTSXTRANCX! — ^TO WHAT EXTENT IS IT SESIR- ABI^S AND rEASIBIiE IN THE UNITED STATES, AND BV WHAT MEANS CAN IT BE ACCOMFI.ISHED? Address Before Forty-seventh Session of National Convention of Insurance Commissioners, September 28, 1916, Richmond, Virginia Si 13. VNEUEF^OYIIENT INSURANCE. PAGE Address Before the Forty-first Annual Meeting of the American Academy of Medicine, at Detroit, Michigan, June 9, 1916 98 14. JOINT STOCK COMFANV HEAI^TH INSURANCE. Address Before the Conference on Social Insurance, December 5 to 9, 1916, Washington, D. C. Called by the International Association of Industrial Accident Boards and Commissions 113 15. WEJ^FARE (SOCIAi;) AND UNEMFI^OiruIENT INSURANCE. Testimony of Mr. Rufus M. Potts, Insurance Superintendent of the State of Illinois, and Chairman of the Committee of the National Convention of Insurance Commissioners to Investigate Social Insurance, at Hearing, April 6, 1916, before Committee on Labor of the United States House of Repre- sentatives on Joint Resolution No. 159, for the Appointment of a Commis- sion to prepare a plan for Social and Unemployment Insurance 119 16. VITAI^ CONSERVATION. Appreciation of a movement for promoting Vital Conservation 135 17. UNDERWRITERS' ANNEXES AND AGENCIES. Ruling Concerning the Operation of Underwriters' Annexes and Agencies In Illinois, June 16, 1914 '. 138 18. PROTECTING CONGESTED DISTRICTS IN CITIES. Address Before the National Convention of Insurance Commissioners, Mon- terey, California, September 22, 1915, at Its Forty-sixth Session 143 19. STATISTICS OF FIRE INSURANCE EXPERIENCE. Minority Report of Rufus M. Potts, as Member of Actuarial Committee of National Convention of Insurance Commissioners 152 20. FIRE INSURANCE CONDITIONS AND RATES IN II.I.INOIS. Special Report to Governor Edward F. Dunne on Investigation of Fire Insur- ance Conditions and Rates in Illinois, by Rufus M. Potts, Insurance Super- intendent, November 19, 1914 161 21. I-EGISIiATTVE RECOMMENDATIONS TO FIFTIETH GENERAI. ASSEM- BI.Y, 1917 SESSION, REIiATING- TO AIiI^ BRANCHES OF INSURANCE.. 219 22. PROPOSED FIRE INSURANCE I^AW. A Bill Submitted to the Fiftieth General Assembly of Illinois, 1917 Session. 237 23. PROPOSED WHOI^E FAMIIiV PROTECTION I^AW. A Bill to Provide Whole Family Protection for Members of Fraternal Benefit Societies, Submitted to the Fiftieth General Assembly of Illinois, 1917 Session 251 24. CI^ASSIFIED FIRE INSURANCE STATISTICS OF II^I^INOIS FOR 1915. Special Report, Containing Compilation of the Classified Reports made by all Fire Insurance Organizations Doing Business in Illinois in 1915 257 THE ALTRUISTIC UTILITARIANISM OF INSURANCE Address Before Forty-fifth Session of National Convention of In- surance Commissioners, September 17, 1916, Asheville, North Carolina. No man has any more choice concerning the place and time, the circumstances and conditions of his entry into life than he has over the coming of spring. After having attained manhood, he may fondly imagine in the fullness of his powers that he con- trols his fate: that he is master of his own destiny, but this is largely an illusion. Man has multipHed to such enormous num- bers and his paramount faculty of reason has given him such a tremendous advantage over all other living creatures on earth that he has conquered them all. Modern civilization and invention have rendered the world such a safe and comfortable place in which to live that it is little wonder that such an illusion beguiles all mankind. Few, however, are permitted to enjoy for their lifetime this pleasant dream. The vast impersonal forces of the universe in their irresistible courses crush many, while those not thus de- stroyed are disabled or become diseased, so that their bodies are filled with pain and misery and their souls with despair. The ways in which humanity is injured or destroyed are innumerable. One man is struck down by the lightning's deadly bolt; another is crushed by a tornado; another is drowned by a tempest at sea; some are mangled by the giant machines which they, helped to construct; others, as they delve beneath the earth for minerals, are crushed by the rocks which fall upon them, or burned by the fiery gases given off from the coal they dig; millions are stretched lifeless on their beds by the invasion of their bodies by countless myriads of deadly disease germs, while, worse than all, other mil- lions are killed by their fellowmen in the frenzies of organized murder, called war; and at last, those who by fortune and by chance have escaped premature death by disease or violence, have their existence ended by the slow enfeeblement resulting from the cumulative effects of the inherent imperfections of their own bodies, which we call old age. Consequently, when a reflective mind contemplates the career of man and considers his uncertain and transient existence, ever liable to be overwhelmed by the giant forces of nature, he be- holds human life stripped of all its everyday disguises and illu- sions ; and sees it, a puny thing, emerge from nothingness, and ^ Immediately following the preparation of this address, Mr. Potts became seriously ill and was unable to attend the convention, and the address was not sent In time to be Included in the official proceedings of that meetinff. stand shivering a brief period on the desolate shore of infinite ex- istence until the moment when, caught up by the ceaseless whirl of the elemental forces, it is again swept back into nonexistence like a snowflake into the surging ocean. "Like a swift fleeting meteor,- a fast flying cloud, A flash of the Lightning, a break of the wave, Man passes from life to his death in the grave." HUMAN REASON AND HUMAN WELFARE. "What then," you ask, "Are we to weakly abandon ourselves to despair and become helpless puppets of fate; apathetic sufferers of the stings and disappointments of calamity?" No! I do not preach any such doctrine of ignoble resignation. Rather than come with such a message I would shroud myself in the silence of despair. Although none can wholly escape disappointment, trouble and misfortune, by barkening to the counsels of wisdom and reason, every brave man finds that he can elude many of the mis- fortunes which afflict mankind and repair the effects of many others. I wish to call your attention to insurance as the plan which is the supreme achievement of human reason for preventing or mitigating the welfare-d^troying effects of misfortune. Reason is the divine faculty, which, during the long dim ages pre- ceding history, enabled man to finally conquer the stronger wild beasts which occupied the world before his coming, so that they either became his domesticated servants or were destroyed from off the face of the earth. More recently, being further developed, reason has enabled man to master one by one the subtle and mighty forces of nature and compel them to serve him : the wild winds turn his mills and propel him in his ships wherever he desires; turbulent steam toils ceaselessly for him in factory and mine, on railroad and steamboat ; fire, the dread destroyer, humbly cooks his food and warms his house; combustible gases work for him in millions of automobile engines; electricity flashes his thoughts in the twinkling of an eye across continents and under oceans, and lights his cities and buildings with a radiance rivaling the sun; mighty waterfalls generate for him a tamed and domesticated lightning to perform not only many of the tasks of his older slave, steam, but also innumerable other indispensable services. Within the memory of children still in school, the restless, impalpable air has been conquered, and man now soars in it higher than the eagle ; rushes through it swifter than the swallow. Reason has even enabled man to measurably master his own quarrelsome traits and predatory instincts, the wretched inheritances from savage ancestors, so that he is now able to live together in great communities with a fair approximation to general peace and friend- ship, and with a minimum. of thievery and violence, which encourages us to hope, that when the wild outburst of senseless frenzy now causing the great nations of Europe to destroy each other has subsided, this same reason will attain to supreme control over human passion and folly and- inaugurate an era of permanent .peace between all the nations of the world, resulting from \the reign of a complete and fair system of international law, just as peace now exists between the individual men composing nations, because they are all under the rule of just national laws. FORMER METHODS OF RELIEVING THE UNFORTUNATE. Having accomplished so much, may we not hope that the exercise of this same faculty of reason will enable man to also solve the great outstanding problem of modern times and secure his universal eco- nomic welfare by making complete provision against want and misery resulting from accidents, disease and other misfortunes which are beyond the control of the individual? That which happens to a man as the foreseeable and probable result of his own acts is a punishment, not a misfortune. It is an absolutely necessary means of educating him to obey the laws of nature. It is different with true misfortunes. These can not be fore- seen or avoided, even by the greatest care and prudence, and the question of the ages has been and still is: What way, what method, is there for relieving the incessant, widespread and undeserved misery caused by them ? The innate s)mipathy of the human heart has constantly asked this question since mankind rose above the savage stage, and has also partly answered its own question by rendering neighborly assistance, and by wider charity to victims of disaster. For ages these have been the only succor of the unfortunate and distressed. It is an ancient and honorable method, but owing to the immense increase of the popula- tions of modern nations, neighborly assistance alone has become entirely insufficient. In a century, the population of England has increased from 10,000,000 to 36,000,000 ; of Russia from 115,000,000 to 174,000,000; of the United States from 7,000,000 to 91,000,000. These immense and rapid increases in the numbers of mankind are unparalleled in history. Furthermore, the complicated modern industrial system has sepa- rated a majority of mankind from the soil and other direct means of support, and at the same time increased the possibility of misfortune, and especially the liability to unemployment, so that general charity has become wholly inadequate. Moreover, it is a sad but incontro- vertible fact that liberal and indiscriminate charity may even produce bad eflfects, having an irresistible. tendency to pauperize able-bodied recipients. THE MODERN METHOD OF RELIEVING MISFORTUNE. It would indeed be grievous if one "of the consequences of modern civilization was that misfortune and distress were less effectively relieved and prevented than in the earlier stages of social progress. But this is not true. Calamity and affliction are much better provided against than formerly, although general charity and friendly assistance have become less adequate for that purpose. You naturally ask: "How can this be explained?" In this way : Concurrently with the rapid advance of civilization in the past two centuries there has also been developed an effective plan for the methodic and systematic relief on business principles 10 of suiferers from disaster and misfortune. This is the modern system of insurance in all its various branches — marine insurance, fire insur- ance, life insurance, accident insurance, health insurance, and many others. The word insurance and the names of its principal branches are known to everyone, but the basal principles on which its successful operation depend are understood by comparatively few, even among those directly connected with that business. Consequently, I beg your indulgence while I recall very briefly the fundamental principles on which insurance is based, because a clear comprehension of them will, more effectually than is otherwise possible, implant a realization both of its present benefits and the desirability of a much wider extension of the methods of insurance. Such extension is, I earnestly believe, the most important social problem before the civilized world to-day. INSURANCE COOPERATIVE FORESIGHT. The primary fact of human nature which renders insurance possi- ble is the possession of foresight — ^that is, anticipation of and care for the future. This is the essential feature of civilization ; the higher the civilization, the more extensive is its function. The savage lives only in the present. He feasts one week, but starves the next. He basks comfortably without clothes in the warrti sun of summer, but is chilled to the bone when the snow-laden blasts of winter strike his naked body. Civilization began when men migrated to those parts of the earth where the cold of winter compelled them to store up food for the time when the productiveness of nature would be suspended by frost, and also to provide clothing and build a shelter against its biting blasts. This is why civilization originated and has made most progress in the temperate zone, where sharp alterations of the seasons occur, and is also the reason there has been so little progress in the vmvarying tropics where natural supplies of food can be gathered throughout the year, and where there is no need of artificial covering as a protection against the cold. As mankind in the course of long ages spread farther and farther into the cooler regions of the earth, the faculty of forethought grew stronger and stronger by exercise, and naturally came to be applied to many other purposes than the mere storing, up of food and clothing to render life possible during the winter. As wisdom increased, it was gradually realized that foresight could be usefully applied not only to provide against certainties, such as misery from hunger and cold in winter, but also, by the method of insurance, to relieve and prevent unexpected suffering from uncertain and unforeseeable happenings, such as fire on land, shipwreck at sea, accidental injury, or sickness, or premature death. As increasingly favorable results were attained' insurance methods were extended to provide indemnity against such things as burglary, theft, breach of trust, failure to fulfill contracts, or realize expected profits. It is now made use of in practically every relationship and activity of civilized mankind, and has become an absolutely necessary part of the economic organization of all modern nations. 11 THEORY OF INSURANCE. Why this great historical development of insurance has occurred, and how it is able to accomplish the good which has brought about its universal use, can not be fully apprehended without understanding the theory of insurance. J Successful insurance against the effect of uncertain contingencies rests' on a certain fundamental fact, discovered only after knowledge had accumulated, so that a record and com- parison was possible of the everyday experiences of individual men under the conditions prevailing in civilized communities. When these began to be made, it was at first dimly and, as knowledge grew, clearly realized that, although the occurrence of particular disasters and mis- fortunes was most uncertain in relation to any individual, Itj^at in relation to the total population of any community of considerable size, some were certain to happen to somebody, and above all, that the number of occurrences, taking communities of considerable extent and over considerable periods of time, was approximately regular. Conse- quently, if all persons subject to a certain contingency contribute a small amount, according to the average frequency of such contingency, to a fund faithfully guarded by a trustee and used for the purpose of reimbursing the losses of those to whom the contingency occurs, we have a financially practicable and effective method of securing means for relieving all victims of that kind of misfortune among such con- tributors. It is on this simple basis that the vast structure of modern insurance is erected. Its development has only been possible through the accumulation of the experience of millions of men in relation to many ciifferent kinds of disastrous uncertainties in many countries extending over periods of hundreds of years. The final result has l^een that insurance against occurrences, very uncertain from the standpoint of the individual, ^jj be carried on as business enterprises of great stability and soundnessj In fact, modern insurance companies when managed by honest men, and not merely used as a safe and easy method for stealing as they frequently were in the past, are among the most stable and profitable of all business enterprises. There have been fewer failures among insurance companies in the past 50 years than in any other equal division of business. THE ALTRUISM *AND UTILITARIANISM OF INSURANCE. But insurance is not only a successful and indispensable business enterprise, but it is an effective application, under the conditions of modern industry and finance, of the great moral law enunciated by Christ himself in the command "Bear ye one another's burdens." There can be no question in the mind of any man acquainted with modern commercial, industrial and social conditions that the many existing branches of insurance, even in their present imperfect and needlessly expensive form, are very useful and frequently indis- pensable. In other words, insurance is highly utilitarian; but being also an effective method for carrying out Christ's altruistic command to bear one another's burdens, insurance is also strongly altruistic in character. This is the sufficient justification of the big words of my subject — "The Altruistic Utilitarianism of Insurance" — which ex- 12 presses more concisely and completely the beneficial effect and funda- mental nature of insurance in fewer words than could otherwise be done. Utilitarianism is the doctrine that the greatest good of the greatest number should be the end and aim of all social and political institu- tions. There no doubt exists in the minds of some persons a feeling that utilitarianism is something strongly imbued with sordid self- interest. This, however, is not the correct meaning of the word. The greatest good of the greatest number is one of the highest ideals, being the nearest approach to a universal ethical law which it is possible to enunciate for great numbers of human beings, subject to conflicting interests and animated by antagonistic desires. All correct theories of social organization or action must justify themselves in actual use, so that I believe we can profitably devote a few paragraphs to the history of insurance in order to find whether its history and progress confirm the correctness of the theory upon which it is founded. HISTORY OF INSURANCE. ; Although even before the Christian era, in the Assyrian and other early civilizations, there is said to have been employed something like present insurance plans for making provision against the results of fire, shipwreck and other calamities, the immediate origin of our present insurance institutions is found in the middle ages of European history. The first form of insurance used was marine insurance against the perils of the sea, which began to be used about the year 1300 in Belgium, somewhat later in Portugal and Lombardy, and in the 16th century in England. The first insurers were private persons, but such insurance lacked the benefit of large aggregations of capital, and also of a sufficient number of policies to create a law of average which would render the business financially secure. The insurer who took one or a few risks, being without the safety arising from the law of averages resulting from combining a large number of risks, might be crushed by a large loss. To avoid these dangers, the practice early originated in London of the men who were engaged in marine insurance meeting together and each assuming such part as he desired of any risk offered, by writing his name for a certain part thereof under a statement of the conditions and amount of the risk. It was on account of .this practice that insurers came to be called "Under- writers." About the end of the 17th century these meetings of insurers in London were commonly held at Lloyd's Coffee House. From this grew up the great Lloyds system of marine and other insur- ance, still in operation. Among the perils insured against in marine insurance, was destruction of the vessel by fire. It was an easy step to grant insur- ance against damage by fire to buildings or other property on land. It is also claimed that fire insurance had an independent origin among the guilds in Teutonic countries. The prevailing modern form of fire insurance by joint stock corporations, unquestionably originated in England soon after the great fire of London in 1666. Thence it spread to European countries, and later to the United States, the first 13 American fire insurance company being organized in 1752 at Philadelphia. Life insurance is probably also an offshoot of marine insur- ance, originating in the practice which grew up among ship-owners of insuring the lives of their captains and supercargoes as well as the ship and goods, as upon the lives of these, the favorable results of a voyage so largely depended. After the success of commercial, cor- porate fire insurance became unmistakable, some fire insurance com- panies enlarged their scope by issuing life insurance policies. Cor- porations for the sole purpose of life insurance were first organized in England in 1699, and in the United States in 1759, but their business was small, and it may be said that modern life insurance really began with the organization of the still existing Mutual Life Insurance Company of New York, in 1843. Accident insurance began in 1849 in England. The other more highly specialized branches of insurance originated later, and their expansion to present enormous amounts has occurred within the past 50 years. We see, then, that insurance is essentially a modern institution. Though its use to limited extent began a few centuries ago in centers of commerce, the mass of mankind until recently had no knowledge of its existence and usefulness. Its popular appreciation and general application to the needs of common men only began in the first half of the nineteenth century and has multiplied a hundredfold within the memory of men still living. ENORMOUS EXPANSION OF INSURANCE. In Illinois, only one out of 48 states, there was collected during the year 1914 over $27,000,000 in fire insurance premiums; more than $66,000,000 for life insurance, and in the other branches suffi- cient to bring the total up to $110,000,000. In the whole United States there was collected in the same year, over $430,000,000 for fire insurance premiums; over $883,000,000 for life insurance, and in the remaining branches sufficient to make the total insurance pre- miums collected over $1,485,000,000. In addition to this, the insur- ance corporations derived immense incomes from investments of reserves and other funds contributed by policyholders, so that their total income -for a single year is approximately one and three-quarter billion dollars. While the amount paid in the United States is prob- ably greater per capita than in any other nation, still the aggregate amount paid for insurance in the remainder of the civilized world, of course, greatly exceeds that paid for this purpose, in the United States. This immense growth vindicates insurance historically. It has increased because it fills a pressing need. In scriptural words, "It is justified by its works." Our present vast and complicated indus- trial and commercial system could not be carried on without its aid. I do not believe that modern civilization would have been able to attain or continue its present splendor without its widespread aid. It has done more than charity and preachers to foster a general feeling of common interest and human brotherhood. 14 IS INSURANCE NEEDED IN MODERN TIMES? Certain doubtful points in relation to insurance may, however, occur to your minds. Is the method of relief embodied in insurance really necessary at the present time? If the world managed to get along with only charity and neigh- borly assistance through all the stormy earlier ages of history, would not these suffice now ? Have not the modern improvements in living conditions ren- dered the need for assistance so infrequent that insurance should not be regarded as a necessity or even desirable? The reply to such questions is that, taking into account the much higher standard of living now prevailing, misfortunes produce rela- tively as disastrous or even more disastrous effects on the welfare and happiness of the individual now than formerly. I will explain how this occurs. While it is, of course, true that human welfare does not depend altogether on a supply of commodities — that is, things to eat, wear, and supply other bodily needs — nor on what amounts to the same thing, a supply of money with which these commodities can be pur- chased, it is nevertheless also true that a sufficient and regular supply of such commodities is an indispensable prerequisite to human welfare. Bare existence is not possible without such fundamental necessities as food, clothing, shelter and fuel, and for life to be. pleasant and desirable, there must be a wide variety and ample supply of com- modities. The method by which civilized man secures all the commodities desired by him is through the widespread and complex system of modern industry and commerce in which, instead of each family working chiefly to produce the things necessary for its. members, pro- ductive work has become highly specialized, and each individual works all the time at producing one or a few comniodities, or even does only a part of the production of one commodity. This is true, though in a lesser degree, even in farming. The one or few commodities thus produced are exchanged through the medium of money for all of the great variety of commodities the worker and his family need or desire. This cooperative method of production and exchange has immensely increased the productiveness of labor and so that the total amount of commodities that one man's labor will enable him to secure is greatly enhanced. The progress of civilization itself is essentially an increase in general human welfare, which has usually, if not always, arisen from improved methods of cooperation. By reason of these improvements, ordinary people now have more and better food and clothing and other necessities, enjoy more luxuries, and live a safer and more com- fortable life than did kings and nobles a few hundred years ago. Unfortunately, however, the present world-wide and complicated industrial system not only suffers from serious inherent defects, but the very fact of the complexity of the systerh, the minute subdivision of labor and the wide separation of the producer from the consumer 15 which it brings about, produces the effect that, if for any reason the worker is unable to work, destitution and distress affect him more immediately and intensely than under more primitive conditions. Suffering is more immediate because when each family was almost self- sustaining, there would likely be some store of supplies on hand to furnish subsistence if the labor of the worker ceased, or other mem- bers of the family would probably be able to keep the domestic system running for some time and perhaps permanently. This is still true to a considerable extent of farming. Distress is relatively more intense because the standard of living of the masses is now much higher so that if a family falls into want, they fall farther and suffer more. Consequently, not only are means of self-help less available to those afflicted by misfortunes under modern conditions than in former stages of civilization, but the frequency and power of such occurrences to produce misery are increased. This is the unfavorable side, the apparently unavoidable result, of our modern industrial and commercial system which in other ways has produced such splendid improvements of living conditions. The welfare of the masses of our population is now higher than ever before but is more uncertain. Those overtaken by misfortune are, relatively to present-day standards of living, more affected than in former ages. Consequently, what is imperatively needed is some means, method, or system by which the welfare of all of the individuals composing the great masses of our population can be rendered certain and secure. The only way in which this can be accomplished of which I have any knowledge, is through insurance and particularly those branches of insurance such as life, health, accident, old age benefits and unemployment insurance, which are concerned with maintaining the personal welfare of all the individuals making up the Nation by supplying means of support when this has been lost through sickness, accident or premature death. If anyone knows any better method, let him come forward and give his invention to humanity. He will be acclaimed as the greatest benefactor of mankind. But I do not believe that any better plan is possible, so that it seems to me that what is most urgently required is diligent study to improve insurance methods, and to free it from extortion, so that it can be furnished to the people at cost, and above all, to render its benefits universal even by com- pulsion where necessary, so that its protecting shield will be over the welfare of each man, woman and chiM in the United Staes. BENEFICIAL INSTITUTION ABUSED AND PERVERTED. There is a good reason why insurance has not already become universal as it should be. Insurance like every other beneficent insti- tution, has not escaped being abused and perverted by unscrupulous men to serve their selfish ends. Just as evildoers and hypocrites have crept into the churches and used them as a cover for the attainment of their selfish purposes, so extortioners and parasites have fastened upon the. altruistic institution of insurance and used it as a means of amassing immense unearned riches. In the earlier stages of insurance, many companies were deliber- ately organized as a safe and easy means of larceny by methods now 16 called "high finance." Such evils have been largely remedied by laws enacted in the various states and in all other civilized nations, closely supervising and regulating the insurance business. Although imme- diate satisfaction of the contemptibly selfish desires of dishonest and predatory men through such criminal perversion of insurance institu- tions is thus prevented, they now attempt to gain their ends by means of extortion through excessive rates for insurance which they are able to exact by creation of insurance monopolies. This is easy in the absence of laws regulating rates because insurance in many of its branches has become absolutely necessary under modern commercial and economic conditions. It is, of course, proper that those who give their time and efforts to the insurance business should be paid a fair compensation similar to that gained by similar efforts in other branches of human endeavor, but it is wholly wrong for the institution of insur- ance which has grown up and exists solely for the relief of misfortune to be seized upon by extortioners in the persons of captains of "big business" as a means for making fabulous undeserved profits. Such conduct is as contemptible as a thief who steals money out of the poor box of a church. It is as wicked a perversion of an altruistic institution as the turning of the Temple of God into a shelter for money-changers. In 1914 some fire insurance companies paid divi- dends to their stockholders as high as 50 per cent ; salaries of $50,000 to $100,000 annually are paid to officers of many insurance cor- porations. EXPENSE OF CONDUCTING INSURANCE SHOULD NOT EXCEED EXPENSE OF CONDUCTING BANKING. Insurance is essentially a trusteeship for the collection of con- tributions from great numbers, and the disbursement of the trust fund so created to those suffering the disaster insured against. Aside from the slight additional expense necessitated by inspections and examina- tions of the person or thing insured, there should be no greater expense connected with the business of insurance than with the business of banking, which is similar in many respects. Everybody knows that the banker is very willing to care for funds free of charge, being amply re- munerated by the profit which he makes by loaning a part thereof. The funds collected for insurance are retained in the hands of the trus- tee much longer on the average than the deposits in a bank, and if rightly conducted, the interests on these funds should suffice to pay the expenses of the insurance business, including the expenses of necessary inspection of risks of all kinds, both property and human. The insurance business was originally conducted in the same way as banking, that is, the person desiring insurance came to the insurer and made application for insurance in the same way that a man desiring to deposit his money comes to the bank and makes his deposit Unfor- tunately, owing to greed for larger shares of the very profitable busi- ness of insurance, there grew up an absurdly expensive and cumber- some competitive agency system comprising innumerable rival solic- itors, so that to pay the commissions of these and the salaries of a whole hierarchy of supervisors and detectives necessary to keep the 17 system in working order, almost one-half of the premiums received from policyholders, and also the interest income from vast trusteeshij) funds, are absorbed. In fire insurance this proportion, taking the United States as a whole, has been almost exactly one-half for dec- ades. In ordinary life insurance, it is somewhat less than one-third. In other branches of insurance, the expense of the business in some is a little less and some a little greater than one-half. This is the great- est wrong of modern times. CORPORATION INSURANCE AN ECONOMIC LOSS. On account of one-half of the premiums being thus consumed by the expense of carrying on the business, insurance is a great economic loss to society as a whole. For example, the annual fire loss in the United States is about $315,000,000 but insurance against fire costs $430,000,000. If there was no such thing as fire insurance $215,000,- 000 would be saved from the national economic standpoint. It is the same in other branches of insurance. It is a startling thought that this enormous expense of conducting the business makes an institution which is beneficial to the individual even under present enormously expensive methods, an economic loss to the Nation at large. There is absolutely no justification for such monstrous results. The benefits of insurance to the individual are so great, that rather than do without it, he will endure the extortionate expense of corporation insurance, but better insurance than that furnished by corporations can be provided without any expense loss whatever if proper action is taken. STATE INSURANCE ONLY SOLUTION. I have given the wasteful economic results of insurance careful attention and thought. In my opinion, there is only qne way now in which this enormous and needless waste can be avoided. This is by the carrying on of all branches of the insurance business by the Nation, and making certain branches of them, particuarly those branches di- rectly concerned ,with human welfare, compulsory on every able-bodied person, unless a certain minimum provision has been otherwise securely made by each man for himself and his family whenever they may hap- pen to be affected by accident, sickness or other contingency. Such optional other provision might be by a transferable but inextinguish- able property lien analagous to a homestead, or by such other method as might be approved by an insurance commission. I regard some such option as a very important feature of a compulsory system of state insurance, for it will prevent any clash with the individualistic instincts which are very strong in a large part of our people, but would also make certain that provision was made for every citizen against the results of misfortune. So far as fire insurance, most kinds of casualty insurance, surety insurance, burglary insurance, and some others are concerned, there would be no need of legal compulsion. They are compulsory already under modern conditions where credit is an integral part of the com- mercial system. Moreover, in most of these not only would the cost — 2PS 18 of insurance be reduced by approximately a half, but in fire insurance for example, the cost would be still further reduced, because if carried on by the state, with proper supervision, inspection of risks and limit- ing of insurance so that it would not be profitable to burn out, the fire loss could be immediately cut down greatly, perhaps one-half, so that the total insurance cost would be less than one-fourth the present charge. Similar results would be obtained in other branches of insur- ance. The people will have to fight for state insurance, ^.nd after it is obtained, unceasing vigilance will be required to defend it from dis- honest, grafting politicians, but such defense can and will be effectually accomplished. This danger of political corruption is the only objec- tion which the corporations have been able to allege against state in- surance, but this supposed danger should not cause us to cease for a moment our strivings to obtain the priceless advantage of universal state insurance at cost for the people of this great Nation. After the people have once enjoyed its priceless benefits, they will not allow sacred insurance funds to be despoiled by dishonest politicians. Be- cause the postofiSce department touches directly and vitally all the people, there is practically no dishonesty or inefficiency in its admin- istration. It would be the same with insurance. The caution and interest which the guarding of their insurance funds from political dishonesty will arouse in our citizenship, will be a tremendous help toward reform in all departments of politics and government. Government is the most ancient and necessary form of cooperation, being for the purpose of securing safety of life and prop- erty. Though we have unfortunately become somewhat hardened to abuse by dishonest, contemptible parasites of governmental institu- tions, they should be held by all as a sacred trust. I sincerely believe that the assumption of universal insurance functions by the state would help immensely to secure honesty and efficiency in all' other branches of the government. ECONOMIC OPPORTUNITIES EQUALIZED. A general system of insurance reaching and protecting every in- dividual would tend most powerfully to equalize economic opportuni- ties, and render the welfare of each member of society secure by pro- viding for his support when he was rendered incapable of self-support by the effects of the many accidents and emergencies of life. At the same time, if properly guarded, it would not contribute to degradation and pauperism as does indiscriminate charity, but on the contrary would be the strongest incentive to self-support by the individual be- cause it would make unavailable the excuse now so glibly offered by shirkers that their idleness, though in reality due to their own disin- clination to work, is owing to the imperfections of society. The daily income of the masses does not leave sufficient margin particularly under the high living cost now prevailing, for the common people to pay the cost of a complete system of insurance to make se- cure their welfare unless all excessive and unnecessary expense is eliminated. If the feature of unnecessary and prohibitive expense of 19 carrying on the business of insurance is remedied, then the way will be clear to an immediate and immense widening of the use of insur- ance for making secure the welfare of all those who are not now pro- tected by insurance or in any other manner, which still includes the great majority of our people. This extension of insurance, until it becomes universal, is the most important present-day problem con- cerning human welfare. The correct mathematical principles and scientific theory of insurance have now been well worked out, but on account of high cost, its inestimable benefits are still accessible to comparatively few, and those not the ones who most need it. The accumulated experience of decades has rendered it possible to make estimates in advance very closely approximating the amount of insurance premiums required to be collected to pay losses which thereafter occur. The result has been that the business of insurance has become reliable aijd trustworthy, so that even under the present excessively expensive methods of carrying on the business it accom- l)lishes great good. Insurance is urgently needed by everyone not independently wealthy. Indeed it may be just as useful even to the wealthyj for riches are proverbially uncertain and always liable to take wings and fly away. Who is so miserable as the one rich man sick or disabled ; and who arc so helpless as the family of such an one? Insurance, therefore, is needed for all, rich and poor alike, particularly life, health, accident and similar insurance which are directly concerned with providing funds to protect personal welfare. BENEFITS OF UNIVERSAL INSURANCE. Every year hundreds of thousands of actual instances demonstrate the altruistic utilitarianism of insurance. If its benefits are so great to the comparatively few who are able to take advantage of it, what must be the result if insurance was made universal? It would prevent practically all the sorrow, misery and suffering in the world resulting from want of means of support. The outcome of universal insurance for making secure their economic welfare will be nothing short of a revolution in the living conditions of the masses. It will replace the terrible tortures of lifelong insecurity by the joys of security and con- tentment. It will drive out the demons of destitution and misery which haunt so many million homes and bring instead the angels of hope and confidence. Life can only be complete and satisfactory if reasonable confidence and security exist. The economic security of the inde- pendent fanner and other members of the so-called middle classes is the reason for the longing with which their situation is regarded by othei classes. In reality they work harder and exercise more self- denial than any other class. Insurance furnishes the only practicable method by which reason- able security in the means of livelihood can be guaranteed for the masses of the people under modern industrial conditions, where the .'reat najority of tho \\ork(>rs are wage-workers and do not own the industry in which they work. Tii fact, on account of the present specialization and minute subdivisions of modern industry and 20 commerce, insurance would be just as desirable even if all indus-- tries were, as they should be, conducted on an entirely cooperative basis, the workers being the shareholders, and so the owners of the business. Therefore, I maintain that insurance is an abso- lutely necessary and fundamental means of securing to every per- son the benefits of modern invention, civilization and progress. It is worse than a mockery for a man to be surrounded by all of the commodities and pleasures furnished by modern industry and invention, when misfortune has stripped him of means to purchase them. Such an one endures in real life the fabled tortures of Tantalus. FURTHER SOCIAL PROGRESS DEPENDS ON UNIVERSAL INSURANCE. It seems to me that our present-day civilization has practic- ally reached its limits under present economic conditions; that social progress has come to a standstill; and that the new factor of general insurance at cost, and particularly universal welfare insur- ance, is needed to furnish economic security for every worker, be- fore there can be any further progress. Advance in the sciences, the foundations of invention, and in the arts and professions which are directly concerned with human welfare, and also progress in literature, music and other arts which minister to the pleasure of life and make it worth living, can only take place if existing industrial and economic systems furnish a regular and ample supply of food and other necessities. It was so in Egypt, in Tyre, in Greece, in Rome, in Carthage, in ancient Mexico and Peru, in France, in England. In those na- tions, science, art and literature only developed after a regular supply of fundamental necessaries had been made fairly secure. TALENT AND GENIUS PERMITTED DEVELOPMENT BY INSURANCE. The proportion of talent thus set free has constantly increased in modern times, but is still comparatively small. Inborn ability is not confined to any one class of society, but is diffused through- out the whole population. A genius is as apt to be born into a farmer's or a workman's family, as into an aristocratic household. Welfare insurance, by making secure during life the necessaries of existence, will enable and encourage- workers endowed with nat- ural a.biHty to devote a part of their time to higher things, thus affording all talent and genius opportunity for development, rather than forcing all men under threat of poverty and misery to strive only to amass money to provide against misfortune and old age This fear now leads nearly all men of superior ability to devote their entire attention to selfish money getting which deprives soci- ety of their services in higher fields. Instead, then, of society having the benefit of the talents and genius only of the few men and women who happen to be born into a favorable environment and also possess native ability or genius, it will receive the services of all of the potential scientists, inventors, educators, statesmen writers, artists and architects who come into the world. This wili 21 make possible and bring about an unparalleled further advance of civilization which will bless every class and condition of mankind. HAPPIER WORLD UNDER UNIVERSAL INSURANCE. When I consider all the possibilities potential in a general system of insurance, which will make secure and permanent the \velfare of all, ignorant and educated, rich and poor alike, the vision of a new and happier world rises before me, a world flooded with the sunshine of universal happiness, where the people of all the nations of the earth live in undisturbed contentment, and where peace reigns secure because the time has come foreseen by the great poet: " When the war-drum throbb'd no longer, and the battle-flags were furl'd, In the Parliament of man, the Federation of the world And the kindly earth shall slumber, lapt in universal law." But in this blessed future there will not only exist security of life for all the people of the world by reason of universal peace, but there will also exist security of economic welfare and freedom from poverty and misery by reason of universal insurance. This vision, although it may not be fully realized in my life- time, or yours, should be for us an inspiration and a sufficient recompense for our efforts, however humble, in the bitter struggle now going on, and which must continue in order to shake off the innumerable vampires and leeches which have fastened upon the altruistic institution of insurance, where they not only now greed- ily suck as their shameful sustenance a large part of the funds which should flow to the completer relief of human misfortune in all its various forms, but also, by their brazen demands for para- sitic subsistence from proposed wider extensions, render impossi- ble the needed expansion of insurance to furnish universal protec- tion to all humanity instead of only to a comparatively small num- ber as at present. If we do not become discouraged at the tremendous power they have acquired and the insidious, shameless devices these para- sites employ to perpetuate their extortion, but keep up the good fight until the people realize how they are being oppressed, and deprived of priceless benefits, then insurance enlightenment will surely come, and with it, ,a firm determination to be no longer duped. Then right and justice will triumph, and insurance, freed of its parasites, cured of its faults and made universal in applica- tion, will remain forever after the present imperfect and unjust system has decayed into dishonorable oblivion. Then a happy world will enjoy the complete benefits of the altruistic utilitarian- ism of insurance. What is now required is persistent spreading of information of the scientifically and mathematically correct and financially trustworthy theory of insurance, and its transcendent practical benefits until all men know of and desire to partake of its blessings. 22 PERPETUITY OF FRATERNALISM. Address Before National Fraternal Congress, Minneapolis, Minne- sota, August 25, 1915. There are associated with the position of insurance superin- tendent certain honors and privileges which come to one, both as an official and as an individual; therefore, I feel that the honor of having been invited to address you should be shared both by my State and myself. I find that some of these privileges and honors subject me to the hazard of having to talk upon topics on which I am not always fully informed. I am not sure, but that such a hazard now confronts me, consequently the burden of any casualty resulting therefrom must be borne by you, because of the indiscretion of your program committee in extending the invitation to me. On every public building of Paris, whether house of parlia- ment, court of law, school or church, are chiseled the words, "Lib- erty, Equality and Fraternity." This has been required ever since the time of the great revolution by which the people of France gained their freedom from despotism. Since that bloody revolution there have been many vicissitudes in France and periods have occurred during which despots have succeeded in again fastening themselves upon the French nation, but these words have still remained engraved upon their public edifices and their spirit still strives for expression in the life and government of that people. In our fortunate land these supreme principles have suffered no such mutation, and, while they are not engraved on our build- ings, they are nevertheless indelibly imprinted on the heart of every true American. They are, and we hope always will be, the basic principles of our social and political fabric. Liberty and equality are woven by constiutional provisions into the funda- mental laws of the United States and of the individual states. But fraternity, the embodiment of the beneficial spirit of both liberty and equality, extends beyond the mere scope of the law. It arises as an expression of native sympathy and brotherly love, inviting mutual aid and protection, and is the concretion of humanitarian- ism. That fraternity is not the least of these three in the United States is fully proven by the enormous membership of our people in fraternal societies. My subject is the "Perpetuity of Fraternalism." I shall limit the scope of fraternalism in this address to its function in fraternal insurance, because it is the acknowledged fundamental principle upon which has been built the grand institution of fraternal insur- 23 ance, and is the nucleus of that institution. How practical frater- nalism can be made to effectuate its full purposes, make certain its promised benefits and become enduring, are the questions I am expected to answer. The institution of fraternal insurance has graduated at the great university of experience. It must now be treated as suffi- ciently prepared and experienced to accompany progress in serv- ing its mission. In its travels its fundamental principles have survived all tests and tempests and were uniformly strengthened rather than weakened thereby. If it has failed to fulfill its mission the institution, as such, can not be charged with the failure, but any shortcoming has resulted from imperfect application of its basic principles, perversion of its purposes, and from defective or unscrupulous management. Fraternal insurance" is with us to-day as the evolution of the demand of the people of our country for a practical manifestation of the idea of fraternalism. Fundamentally and theoretically it is perfect, and we must deal with its ability to meet social and economic requirements in a material way. Experience has shown with sufficient clearness the existing evils and with the removal of these evils, this beneficent institution will become permanent and entirely fulfill its mission. Public confidence in any institution is either established or shaken by the decisions of our courts thereon. Courts will aban- don former decisions when found to be erroneous or unjust, and this applies as well to the great court of public opinion. Fraternal insurance has many times been on trial before this court of public opinion, which takes as its testimony its own vary- ing sentiments, and public confidence is established or shaken ac- cordingly. In measuring the efficiency of all institutions public opinion does not search for underlying causes, but renders judg- ment against the institution as it exists? Therefore, we must elim- inate the evils and defects and accomplish desired ends before we may expect a favorable decision from this court and receive the reward of widespread public confidence. NECESSITY FOR INSURANCE. In order to fully understand our subject, it is necessary that we first briefly consider the underlying conditions out of which the need for all life insurance arises. We are living in an age of com- plicated industrial and commercial organization which has forced the great majority of the people away from the land where they could, by their own efforts, supply the larger portion of their needs. So long as the bulk of the population lived upon farms, the want and distress resulting from premature death were not so severely felt, and the opportunity for self-sustenance, together with the natural methods of relief by the assistance of relatives and neighbors, were much more adequate. With the change in occu- pations caused by the development of the modern industrial sys- tem, has come the massing of the people in towns and cities, ac- companied by unfavorable conditions, thus weakening these nat- 24 ural methods of relief and self-aid. In most cases the family is supported only by a daily or weekly wage, which is consumed as fast as earned, so that, if death or disablement occurs, there is no reserve in the family upon which to draw, nor any in the families of relatives and friends similarly situated. Consequently, want and suffering follow. It is then essential that the wage-earner whose income is subject to these demands or perils must provide, by some trustworthy and regular method, against such disaster. There are three principal ways of supplying food and other nec- essaries for those left dependent by the .death or disablement of the breadwinner. These are: 1. Charity, both private and public. 2. Savings and investments by the individual. 3. Insurance. Each one of these can and does accomplish much to relieve want, but experience shows that neither charity nor savings, nor both of them combined, are able to even approximately fulfill this purpose. The fund available for charity is comparatively small, and, if long continued, its effect is demoralizing to its recipient. Savings and investments are highly commendable, but few accu- mulate sufficient funds for required purposes. Consequently, we must consider some form of insurance as the only safe method of making provision for the inevitable mis- fortunes of the masses. Insurance accomplishes what the indi- vidual alone can not. It may be said to be a method of providing money where it is most needed when it is most needed, and so is a source of economic security and industrial efficiency. It follows that insurance is a social and economic function. The principal branches of insurance for the purposes now under consideration are: 1. Ordinary life insurance by the regular stock and mutual companies. 2. Industrial insurance, also mostly carried on by such cor- porations. 3. Fraternal insurance and mutual cooperative associations. As the result both of reform from within and progressive leg- islation, ordinary and industrial life insurance has become gener- ally reliable. The feeling of security created has been the chief factor in the tremendous recent expansion of corporation insur- ance. Ordinary life policies average about $2,000 each, covering all classes of persons, but_ the larger percentage of these are in more or less comfortable circumstances. Industrial policies average less than $150 each, and are taken chiefly by wage earners on ac- count of the convenience in method and amounts of payments The purpose is usually to furnish burial funds. On account of excessively high cost of industrial insurance, protection of depend- 'ents is almost entirely prevented. Fraternal organizations occupy a middle ground with benefit certificates averaging over $1,200, and are the means by which the working and middle classes of our people provide not only burial funds, but protection for dependent families. With the field of fraternal insurance practically unlimited, its necessity established and the demand ever increasing, its perma- nency is assured, subject only to the hazard of unfavorable influ- ences from within. These unfavorable influences result from well- defined evils and defects which may be grouped under two heads. 1. Lack of standardization. 2. Commercialism. To the lack of standardization can be traced the financial in- security, imperfect business administration and the failure of soci- eties to fulfill their obligations. My experience as insurance superintendent has brought to my attention many instances of the failure of fraternal societies to meet their promises and discharge their obligations. Although builded upon fraternalism, yet the insurance feature demands the most consideration of the various purposes of your organization, but unfortunately the development of this feature has not been uniform or scientific. Reliability and safety of insurance has not been sufficiently considered. Some of these organizations have apparently striven to satisfy temporary demands of the public by working upon the spirit of fraternalism without due regard to mathematics of mortality experience. Professor Charles R.^ Hen- derson, than whom no better friend of the common people ever lived, says: "It would seem that the majority of the members of the brothel hoods have made themselves believe that the laws of grav- ity, the multiplication table and economic forces and laws may be successfully set at defiance, if only men love each other enough that such commonplace matters as table of mortality, and interest rates are only applicable to the insurance of rich men." Another writer on fraternalism says: "There is no fundamental antagonism between the noblest aspirations of fraternity and the demands for absolute safety and permanency on the part of benefit features of fraternal societies; indeed, without the latter the former may become an illusion capa- ble of drawing multitudes in bitter disappointments, if not worse." It is onlj' by combining business methods and experience, sci- entific knowledge and actuarial standards with fraternal spirit and efficiency, that the full purpose of these organizations can be at- tained. There is no inherent sanctity in fraternal method, nor will high esteem for its leaders alone commend the system to the public. Fraternalism can only earn the gratitude of society by the permanent good which flows from it. (1) By fulfilling its fra- ternal duties. (2) By keeping its promises and maturing its benefit certificates, and these things can not be accomplished with- out the complete and comprehensive standardization of every fea- ture of its business. 36 The constant tendency to commercialize fraternalism is the one blemish upon the character of fraternal institutions. Com- mercialists, of whatever kind, are money changers in the majestic temple of fraternalism. Would that as of old a Supreme Being would come and drive them out with the irresistible scourge of Divine Wrath. Comparatively few men undertake the work of organizing fraternal societies solely for the good of their members. Too often the prime motive is the creation of easy and profitable employ- ment. The administration of the business afifairs of a fraternal in- surance society is a legitimate business vocation and is indeed a high calling. It is not expected that those who give their time and thought to the development of their society shall do so with- out proper remuneration. Officials occupy a fiduciary relationship to the members of their respective societies. They act as the trustees of the joint funds, and administer the business affairs of the society for the sole benefit of the members and without profit or emolument to any person. They are in honor bound to give to their respective societies the highest degree of efficient service, adhere to the fun- damental principles of their branch of insurance, and maintain the honor and integrity of their respective societies. Any perversion of these purposes to commercialism is a betrayal of the trust re- posed in any such officer and brands hirh as a traitor to the society that has honored him and to the beneficent institution which he is presumed to serve. One of the most disastrous perversions is the growth in many fraternal societies of a most damaging and contemptible system of fraternal politics for the purpose of controlling official position and attendant etnoluments. This is a most disheartening feature as- sociated with fraternal societies of to-day, and is the entering wedge of complete disruption of many societies as well as having an unwholesome effect on public sentiment and discrediting the system of insurance. Having grouped under two general heads the principal evils to be found in the existing fraternal system, it is now incumbent upon me to advance a remedy. I have said that fraternalism by its very nature, being founded upon brotherly love and mutual help, is above entire control by law. In the practical manifesta- tion of fraternalism by the Operation of fraternal societies, there have been created certain legal safeguards for the protection of the members. One of the most uniform of these legal requirements is that the management of the society shall be controlled by a representative form of government. The societies, then, are com- posed of the members, operated for the members and by the mem- bers ; therefore, reform of existing evils must come from within. Voluntary standardization on uniform lives by individual so- cieties acting separately is not practicable. Your congress being the organized body of the fraternal institutions of this country it 27 must assume the duties of standardizing every feature of your business and eradicate commercialism, thus eliminating the defects and evils associated with your branch of insurance. Your organization has accompHshed much and is eminently worthy of the commendation universally bestowed upon it. Its possibilities of great work are limited only because its powers are advisory. The recommendations of this body can be accepted or repudiated according to the desire of the officials of any individual society. Perhaps one of the greatest barriers in the way of your accomplishments is the knowledge upon the part of those who do the work that there is no material assurance their recommenda- tions will ever be acted upon. They do not have the sense of responsibility and inspiration that comes with a knowledge that they are the arbiters of a special destiny of fraternalism. Never- theless, I believe there is no other way of securing the remedies which I have to suggest except through your congress. The by-laws of every fraternal society should give to this congress full power to investigate exhaustively into its condition of membership, assessment rates, financial solvency and business conduct, to prevent extravagance and inefficiency in management and acts of commercialism, and this congress should be given power to work out and adopt standards to which all societies af- filiated therewith must conform. If you can not induce all socie- ties to become affiliated with this congress, you can in any event place upon the certificates of your associated societies the trade mark of your congress, which must mean that each society has qualified and shown its ability to carry out the full purposes of fraternal insurance. There can be no objection upon the ground of public policy to investing your organization with such powers or with the power of adopting standards for rates, business meth- ods and practices, as all societies affiliated with your organization are not organized for profit, but to adminiter an insurance fund at cost for the sole benefit of the members. Thus cooperative work and power granted for that purpose can only result to the good of the public. One of the greatest menaces to the success and the future development of fraternal insurance is the failing condition and in- solvency of certain existing societies. Conservation of such soci- eties demand that they coalesce with or transfer their members to other societies. A department or bureau of your congress should be created with full power and authority to administer the assets and business affairs of those societies which have failed to conform to the established standard of your congress. This bu- reau could accept the trust of administering the affairs of only such societies as are voluntarily transferred to it, yet when the purposes of this bureau became fully understood, failing societies should welcome the opportunity to be transferred to the haiids of this bureau. In the administration of the affairs of such societies, and in the amalgamation of either societies or memberships, a careful 28 conservation of whatever resource, financial or other, possessed by the society, could be accomplished. The membership could also be classified and placed upon an equitable basis as to premium rates and benefits, while impartially recognizing actuarial stand- ards and preserving for the societies and the respective members not only their existing rights, but any equities in their organiza- tion. While legal difficulties might be encountered in carrying out the full purposes of this bureau, yet no doubt the voluntary action of the members of a failing society could overcome such difficulties through proper proceedings. This bureau should ac- cept the trust without compensation or emoluments of any kind, the expenses of the maintenance of such a bureau would be slight and should be provided for by this congress. The operation of this bureau for a few years should practically eliminate failures, with the great immediate benefit of inspiring public confidence. With reference to the residuum of so-called fraternal insur- ance organizations which can not be induced to become affiliated with your congress, which persist in refusing to recognize a stand- ardization of their business and which disobey the mandates of fraternalism, thus making reform from within impossible, my sug- gestion is that you begin a campaign for the enactment of such laws throughout the country as will prevent further abuses of pres- ent privileges. Requirements of law must be made to adequately control the worst existing fraternal organization, and if the fra- ternal societies as a whole desire to avoid placing the system of fraternal insurance in a legal strait-jacket, they must themselves remedy the conditions throughout the whole field, which will otherwise demand the enforcement of the strictest legal require- ments. The spirit of fraternalism is eternal, but the particular form of organizations in which it is embodied at the present time will be transitory, ~ if not perfectly adapted to the needs of the people and ever changing industrial, commercial and social conditions. It rests with the fraternals themselves whether or not they shall be the instrumentality through which insurance shall be provided in their particular sphere. If existing defects are promptly, cour- ageously and effectively corrected, insurance for the masses should and will be carried on by the masses through fraternal organiza- tions, otherwise this system of insurance will be supplanted by some other, which of necessity would be State insurance in its various forms, such as already exists in many foreign countries. I have discussed the material and practical problems with which you are confronted, and I may have been critical because I have attempted to point out defects rather than bestow praise. It would have been a more pleasant duty for me to have stood before you and extolled the wonders and greatness of the accomplish- ments of fraternalism as represented by the membership of this congress. I have endeavored to lay the utmost stress upon the necessity for absolute financial security if fraternalism is to be made perpetual. However, there are other features of this human 29 institution which can never be appraised and valued according to any mundane standard. In addition to the enormous money reserves accumulated through the insurance feature of fraternal beneficiary societies, we have equally as great and as valuable an asset in the social feature of these societies. This asset is a reserve that can never be esti- mated in figures nor will it be found among the ledger assets of a society. Although intangible it is a most potent factor ; it is the woven fabric that holds societies together, brings new members, extends an opportunity for social intercourse and intellectual de- velopment; and bestows the benefit of brotherly love, visitation and aid in sickness. This attribute, found only in this system of insurance, is as great a blessing to humanity as the financial aid given by the insurance feature. This is an asset that can never be capitalized or supplanted by money ; it must not be abused nor tortured into submission to commercial demands. It is the enemy of none and the friend to all. The general attitude of this congress toward fraternal insur- ance is unimpeachable, but it is not impeccable. This congress must accomplish the standardization of its branch of insurance, direct its ethical course, assume moral leadership and bring about the full effectuation of the spirit of fraternity, and it must bear the burden where it fails in any of these. Every officer associated with this congress, and every officer chosen by every fraternal so- ciety, should not only be a great exponent of fraternalism but a living example of the fraternal spirit. Each and all. should think fraternally, speak fraternally, act fraternally and live fraternally. In other words, possess and demonstrate a fraternal mind, and any officer not possessing a fraternal mind is unworthy to participate in the activities and expressions of either this congress or of the respective societies. If to-day we cast our eyes beyond the borders of our beloved country, they rest on a sad and stricken world, on myriads of fresh graves which entomb the flower of manhood of the great nations of Europe ; on millions of broken families affected by poverty and misery ; on desolate homes and the smoking ruins of once prosperous cities. It is a horrifying spectacle, and the end is not yet. If we were compelled to believe this causeless, senseless war to be the genuine expression of the masses of the nations scourged by it, then we could have no rational hope for a continuance of civilization. But this is not true. If the common people of Europe could have con- trolled their destiny the spirit of fraternalism would have directed their course and the world's peace would still be unbroken. I am not one of those who would have peace at any price. I do not sympathize with those fearful, cowardly souls who would permit despots to deal with us according to the dictates of their lawless and barbarous wills, in order to avoid war. Slavery is worse than war. Every patriotic American fervently desires peace, but peace with honor, and I hope, from the bottom of my heart, that this will be our portion. 30 The lesson of this dreadful and destructive war should make us value beyond all price the spirit of fraternalism — the direct an- tithesis of militarism. The universal application of the principles of fraternalism would mean the perpetuity of peace. In our country, where fraternalism knows no nationality,' re- ligion, climate, locality, political or sectarian organization, it will know no disaster. Its suppression is impossible and its life ever- lasting, and, with the cleansing of the institution of fraternal in- surance, the perpetuity of this institution is assured, and it be- comes one of our country's greatest mediums for human good. Other insurance organizations may be greater in number, greater in volume of business and greater in strength, but frater- nal insurance is the greatest of all in its moral power, its beneficent service and its wholesome administration of human helpfulness. 31 RESPONSE TO TOAST "ILLINOIS." At the Banquet of the Illinois Woodmen's Social Club, Hotel Sherman, Chicago, Illinois, February 12, 1916. The opportunity to sit at this banquet board and share its bounties with the officers and members of your society, has been a great pleasure to me. I regard it as an especial honor to be called upon to respond to the toast "Illinois," ior she is one of the greatest and most glorious in the fair sisterhood of states. When we become members of any one of our many fraternal orders," we assume an obligation to protect each other, bestow kind- ness, inculcate moral principles, be charitable and promote good fellow- ship. These are well-known duties divinely enjoined upon all men, but they are apt to be neglected unless stimulated and encouragd by obligations to some social organization such as yours, which helps to make each one of you better members of the grandest fraternal order in the world — the God-ordained brotherhood of man. All other orders are but subordinate lodges of this divine fellowship whose obligations rest on every human being. As the soul of man in death cries for its Savior, the soul of man in life cries for human brotherhood, and your society is a splendid answer to that cry. Your society was' born in Illinois and, always making its home in our State, has grown to be the greatest fraternal order in the United States. Consequently it is appropriate that we to-night for a few minutes recall the history of our State and consider her future. Within two years, Illinois celebrates the one hundredth anniver- sary of her birth. A century is but a day in the life of nations, yet in that time, our beloved State has reached unparalleled development and achievement. From less than fifty thousand at her birthday in 1818, the population of Illinois has grown to more than six millions at this time. There must be some substantial cause for this tremendous increase of population which corresponds to our general agricultural, industrial and commercial development. When we pause to consider the reasons for this enormous and rapid growth, they are easily under- stood. In the first place, our State is located in the center of the temperate zone, which is the most favorable part of the world for human endeavor and material prosperity. The rainfall is ample and fairly regular so that a complete crop failure never occurs. It is true that our central location has a tendency to make our winter climate somewhat fickle and changeable. We are apt to suffer one week from a raid of the frost king, who with the artillery of a blizzard bombards us with snow and sleet. The next week the south wind gains the mastery and turns these missiles into water and mud. But in spite 3g of all this, our climate is after all one of the best in the world for agricultural purposes and healthful for human beings. But a favorable climate is not all. When white men came to this State they found the most fertile soil in the world, spread out in broad prairies which did not require years of labor with axe and saw and firebrand to render it fit for agriculture! All that was necessary to grow bountiful crops was to turn the sod and plant the grain. Under such circumstances, it is no wonder that the 56,000 square miles of territory of the State were populated with unparalleled rapidity and became one of the most productive agricultural regions in the world. But its productive prairies are not the only natural wealth with which Illinois is endowed. Thirty-six thousand square miles of its fertile plains are underlaid with rich coal deposits, and in addition the oil pumped from beneath the surface of a few counties only, place Illinois third in petroleum production in the United States. But this is not all. We not only possess the almost immeasurable riches derived from the products' of our farms and mines, but we also enjoy an opu- lent income from our great manufacturing and commercial establish- ments. The City of Chicago owes a large part of its immense wealth and population to the fact that it is the commercial distributing point, not only of Illinois, but also the major portion of the other ^i-^tes of the Mississippi Valley, the richest territory in the world. Illinois is also preeminent in its regard for intellectual things. We have one of the greatest and most progressive educational systems in the world. Our public and private schools, colleges and universities are nowhere excelled, and the graduates from these institutions take rank in educational efficiency with those of any state or nation of the world. As the crown of our educational and cultural system, we have a great public press, which includes the rural weekly as well as the great metropolitan daily. The press molds public opinion and thereby sways the public affairs of the commonwealth. When we remember all these national advantages, our immense population, our wonderful material prosperity, our great educational and intellectual achievements are not surprising; but we should never- theless be exceedingly thankful that we are the highly favored benefi- ciaries of the rich bounties of Providence. But great as is the material prosperity and the financial, commercial and educational achievements of the people of the State of Illinois, they do not surpass what has been accomplished by them in other fields of human endeavor. The original make-up of the population of our State was peculiarly fortunate. Its first settlers came partly from the New England and other northern states, partly from the southern states. It was the energetic, the adventurous, the hardworking, who left their homes in all these states to settle on the fertile prairies of Illinois. Later there came a great immigration from the European countries, and in this Illinois was also particularly favored. The flood of foreign immigra- tion flowed strongest into this State at a time when this immigration comprised the best elements of the best countries of Europe. As might have been expected from the amalgamation of such magnificent 33 strains of intelligent, energetic, law-abiding men, Illinois has taken a leading part in the affairs of the Nation. At the time of the Revolu- tion there were no English speaking settlers here, so that, as a political division, we had no part in the achievement of independence; but when, 85 years later, another supreme crisis occurred in our national life, then Illinois gave to the Nation a world hero, the immortal states- man and patriot, the great Lincoln, the anniversary of whose birth we celebrate to-day. Mankind has already assigned him one of the very highest places in the temple of universal fame. To his tomb at our State capital constantly come pilgrims from all parts of the civilized world to venerate his memory. The remembrance of his life and services have become the imperishable treasure of our State. When we mention Lincoln, it is with pangs of sorrow that we recall also the great Civil War in which a million brave men lost their lives and whole states were made desolafte. Our pride is not on account of the defeat of the South, but for the victory of the principles of justice and human liberty. Another victory must soon be won, and that is the dethrone- ment of militarism and autocracy throughout the world. Each nation participating in the present devasting war in Europe prays to Almighty God in its own behalf. God alone can melt militarism of the warring nations riid, change their enormous armies into peaceful citizens of a world jUblic. When we recall all the blessings and achievements of the great State of Illinois, we are filled with joy and thankfulness. I believe that every citizen of the State should occasionally pause and ponder these things well, but not merely in a spirit of pride and vanity. If the sole effect is to arouse only such ignoble emotions in our minds, we will soon find ourselves on the downward path which leads to the destruction which overtook the splendid but corrupt civilization of Rome. Our magnificent agricultural and industrial production, our honor- able history, our unparalleled educational facilities should not lead us to believe that no further effort is necessary on our part. To-day civilization is more rapidly advancing than ever before in the world's history; and if we do not by continuous and strenuous efforts keep pace with this progress, we will fall into stagnation, which will be inevitably followed by decay. This thought seems to me so supremely important that I seize the opportunity even on this festal occasion to call your attention briefly to some things we must do if we are to longer remain deserving recipients of the bounties of nature in this fertile State, and worthy heirs of the liberty which the heroes of the past achieved for us. Our wonderful prosperity has been of such rapid growth, that there has not been a proper adaptation of our political, industrial and social systems to the wants and necessities of our citizens at the present time. On account of the absence of an entirely just social system which would distribute to each man a fair share of our prosperity in correct proportion to the value of the work which he performed —3 PS 34 toward creating it, strong, cunning, ruthless men have seized the oppor- tunity, chiefly through the instrumentality of great corporations, to grasp 'for themselves an undue portion of our prosperity, leaving to the larger part of the workers and producers — to the farmers and the laborers of the State, but a meager livelihood, secured only by con- stant and arduous toil. The ultimate tendfincy of our present mdus- trial and social system is to produce a small group of millionaires and an immense class of meagerly compensated workers. This tendency has been resisted and partially nullified by various means, so that there may still be found a large number of prosperous people of moderate wealth in our State, but the deleterious tendency, nevertheless, exists and continually operates, day after day and year after year. The bold and crafty men who are its beneficiaries never rest ; they hesitate at no effort; they relentlessly achieve their aims one by one. If our country is to avoid declining into the social and economic con- dition of European civilizations in which the population is separated into a small titled or monied aristocracy and a great peasant or wage- earning class, we must consider earnestly what can be done to counter- act this evil tendency and act accordingly. I believe the best way of counteracting this downward drift is for the masses of people to understand the value of cooperation, learn its methods, and apply them in every line of human activity, but at present more particularly in distribution. The people must help them- selves. If they depend upon others to do the work of distribution for them, these others will become their masters and will absorb all the surplus above the bare necessities of life for the producer. There has been a beginning made in this movement, but it is still only a beginning. Another great movement for the benefit of the masses of our citizens is social insurance. This is comparatively new, but I sincerely believe is of greater importance to the wage earner and the masses in general than any other question before the people of this State to-day. Social insurance, if wisely organized, will enable the citizens of this State to provide against privation and poverty for themselves and their families from the inevitable contingencies of accident, sickness, unem- ployment, premature death and helplessness of old age. As population becomes denser and the factory system of industrial production is fur- ther and further developed, the opportunities of an independent liveli- hood, and even of the worker living in his own home, is more and more diminished, for he must frequently move from place to place to get em- ployment. Consequently, what is needed is an institution into which, during their productive years, all classes, but particularly the working classes, can pay their surplus earnings and be absolutely secure that when overtaken by accident, unemployment or premature death, or rendered helpless by disease or old age, a fund is provided to support themselves and their families. I can not, of course, at this time, and at this place elaborate as to details of the establishment of either universal cooperation or of social insurance ; but I do beg every one of you who has the interest of the teeming, toiling millions of the people of the great State of Illinois at heart; every man who admires the example and emulates the acts of 35 that great man whose birthday we celebrate to-day ; to ponder well these subjects in his spare moments and to use his influence to have them become beneficient realities in the near future. Although, as we earnestly endeavor to descry in the dim future the further course of our beloved State and Nation, it may appear to be overshadowed by clouds and threatened by tempests, still I am supremely confident that by divine favor it will survive them all and, like a well-steered ship, continue its stately progress for evermore on the infinite river of time toward the haven of eternity. I believe this because in the past there has arisen in the United States of America, during every crisis which has confronted it, a man equal to the emer gency. During the Revolutionary War this patriot was George Wash- ington ; during the Civil War, our own Abraham Lincoln ; during the World War, Woodrow Wilson. Freedom was gained under Wash- ington, preserved under Lincoln and will be made permanent under Wilson. But above all, let us humbly remember, when we recall the great- ness of our State's greatest man that, when he lived, he was but one man of its two million people ; that our great State is but one of forty- eight making up our greater Nation ; that our Nation is but one among those that crowd the earth; that our earth itself is one of the least among the myriads of twinkjing stars which bespangle the firmament of the universe; and that after all for us as human beings enjoying therein a brief existence, the greatest thing in the world is the divine principle of love as manifested in the spirit of the brotherhood of man and exemplified in such fraternal organizations as those to which you all belong. 36 MUTUAL INSURANCE. Address Before Farmers' Grain Dealers* Association of Illinois at Bloomington, Illinois, February 10, 1916. Mr. President and Members of the Farmers' Grain Dealers' Associa- tion of Illinois: I assure you that I am greatly pleased, as well as highly honored by having been invited to address your association at this, its twentieth annual convention. The word "farmer" brings to me visions of the first twenty years of my life. We all have many heartstrings which tie us to the past, and one of these which is never broken, is the mem- ory of our boyhood days. During these days many, of us felt that we were beset by hardships and privations, but the experiences of matur- ity teach us that these were simply foundation-building, man-making days and that human development can not be effectuated so well under any other condition. My boyhood days were spent on the prairies of Illinois and I not only long for the return of those days which will never return, but hope to retire to a farm where I may again live that free, cheerful and healthful -life, which is unknown in the strenuous career of the professional man. In my professional career, however, of more than twenty years, both in public and private life, I have learned the one great lesson that this life teaches, which, is, the man who serves the public well, also serves himself well. In the practice of law we learn the intricacies of government in all its branches, and appreciate well the needed service. We see and know the unjust divisions of society into classes, with the advantages usurped by one class and the disadvantages suffered by the others. In our efforts to serve the public, we strive in public and private life for the administration of justice, while the class holding the advantage frequently makes the administration of justice to the other impossible. But we still hope that our efforts are rewarded by public appreciation and a knowledge that class equality will some day come in this free Republic. Among these classes, the farmers have been extremely slow in asserting themselves by cooperative work and so gaining their rightful economic independence. One of the grandest examples of what the farmers can do when they are seized with the proper deter- mination, is the results accomplished by the various Farmers' Grain Companies in this and other states. Your cooperative achievements are the first victories of a movement which holds tremendous possi- bilities of advantages and benefits to not only the farmer but to human- ity in general. RESULT OF INDUSTRIAL DEVELOPMENT. As the population of the world increases and the system of mod- ern transportation and industrial factory production is more and more 37 developed, it becomes imperatively necessary that some plan be devised by which exchange of products of the farm or factory can be carried on by the producers themselves. Otherwise, this exchange must be carried on by speculators and middlemen who reap the profits and are infinitely better off than the toilers who assume all risk and endure all the hardships associated with production. Exchange of products under present industrial conditions is the supreme necessity and must be carried on by somebody, and the public must submit to the exac- tions of avaricious traders, until they perform this function for them- selves. All that is necessary is that the people learn how to work with each other and for each other — they must cooperate — one man by himself in such matters is helpless. Cooperation means union of the efforts of different individuals for the accomplishment of a common purpose. It is working with others for a common benefit. One of the oldest examples of coopera- tion is the family, where the efforts of all its members are directed toward the maintenance and happiness of the entire group. In indus- try and commerce, cooperation means the carrying on, at cost, by pro- ducers and consumers themselves, the functions now performed by capitalists and middlemen, for profits. Cooperation takes two forms ; productive and distrbutive. There exists only a relatively very small amount of productive cooperation at the present time anywhere in the world, but there has gradually developed during the past sixty or seventy years, a large amount of distributive cooperation, though, I am sorry to say, much less in the United States than in several of the European countries. HISTORY OF THE MOVEMENT. Since the Civil War there have been a number of attempts to apply the methods of cooperative distribution by farmers in various parts of the United States. Examples are the Grange, the Farmers' Mutual Benefit Association, the Farmers' Union, the Farmers' Alli- ance, and numerous more restricted organizations engaged in pro- ducing special crops. You are, of course, familiar with the history of farmers' elevators, which began with the organization of a farmers' grain company at Rockwell, Cerro Gordo County, Iowa, in 1889, Although the latest, the farmers' grain companies are the most suc- cessful of these farmers' cooperative organizations. Because your association is composed of comparatively recent cooperative agricultural organizations, I believe a brief sketch of the general principles of agricultural cooperation will be helpful in the way of an introduction to the subject of "Mutual Insurance." During the period since the Civil War, a great many of the agricultural cooperative organizations for both general and special purposes have failed. These failures are in marked contrast tp the history of agri- cultural cooperation in many other countries, as well as with the history of cooperation among persons engaged in other occupations in the United States. Consequently, I believe it will be profitable to see if we can find the reasons for these failures. Economists agree that the frequent failures in agricultural cooperative enterprises have usually arisen from three causes. 38 FARMERS AND COOPERATION. In the first place, cooperation has only been employed by farmers as the result of pressing necessity. As long as they receive profitable prices for their products and their returns are sufficient to comfort- ably maintain their families, they have endured burdens rather than attempt cooperation. Taken as a whole, American agriculturists, at least during the past two decades, have been fairly prosperous, and therefore, not easily interested in cooperation. Furthermore, by means of political agitation, the farmers have, from time to time, obtained the passage of laws which have done much to ameliorate the evils from which they theretofore have suffered. In the second place, the marked individualism of the American farmer is a stumbling block in the path of organizers of cooperative institutions. The farmer of the present day is only one or two gener- ations removed from the enterprising and ambitious pioneer who, coming into a fertile country, each individually worked his way up in a majority of cases to a moderate competency. As might naturally be expected, the descendants of these energetic, independent and self- sufficing men have not taken kindly to the limitation of individual- ism, which is necessary to the successful operation of cooperative enterprises. In the third place, the physical isolation of the farmer, necessarily separated from his neighbors by some distance, as well as the long hours of labor and difficulty in assembling regularly, are all factors hindering the development of agricultural cooperation. DEVELOPMENT OF COOPERATION IN EUROPE. The course of cooperative development in European countries has, however, been more favorable, and I believe that we can profit- ably consider the history of the movement, and what it has accom- plished in some of these countries, because we can derive therefrom valuable lessons in relation to making coopeiation successful in the United States. There was little, if any, cooperation anywhere in Europe before the year 1850. Prior to that time the nations of Europe were re- cuperating from the long series of devastating wars which grew out of the imperial ambitions of Napoleon Bonaparte. Many of these countries were the theatre of destructive military operations as they unfortunately are at the present time, so that settled social and political conditions necessary to the inauguration of cooperative movements were lacking prior to the middle of the nineteenth century. But once a beginning was made, progress was rapid. DENMARK. A recent writer who has visited and studied agricultural' coopera- tion in Denmark, where it has attained better results than in any country in the world, gives the following account : "We are taught to believe that efficiency can only be secured by monopoly. It is assumed that any cooperative control of industry must be wasteful. Yet the million and a half farmers of Denmark disprove this. On their own initiative, they have organized themselves into 39 every kind of cooperative business, to carry on transactions which run into the millions of dollars every year. They do it with the economy and efficiency of the most highly organized, private business. And they do it through cooperation, and not through socialism. They buy what they need at wholesale and they sell to themselves at retail, in the same way. Thus the farmer gets all that he makes. He has got rid of one middleman after another, and deals almost as directly with his custo- mers as did his ancestors a hundred years ago at the village fair. "I found cooperation everywhere. The movement is only thirty years old, but in that time Denmark has been changed from a barren country, in which the peasants were not different from those of Germany, into the world's agricultural experiment station. Little by little I learned the story of the transformation ; a story that makes pov- erty seem a crime in a country with the resources of our own ; a story that suggests a vision of ftie unfathomed possibilities and talents of the ordinary man. Further than this, it shows how easily poverty can be cured by law rather than by charity, and this is the big thing this little country teaches to all the world." BELGIUM. Although the development of cooperation in Belgium took place along different lines than in Denmark, nevertheless, the results have been largely the same. Most of the soil of Belgium is not naturally fertile, but has been made perhaps the most productive per acre of any nation in the world by thorough culture and fertilization. This has been the result, as in Denmark, of a dissemination of scientific and technical agricultural education among the actual tillers of the soil, and also by the very wide use of cooperative principle. For example, among the farmers of Belgium, there exists sixteen hundred societies for the insurance of live stock There are also a large number of mutual credit societies organized on the model of Raiffeisen banks. The railroads and other means of transportation are under the control of the government and, therefore, operated solely in the interests of the people, so that transportation is cheap and efficient. There is little question that the marked degree of prosperity which the agriculturists of Belgium enjoyed prior to the German invasion of 1914, was due very largely to the agricultural cooperation in almost universal use in that country. It is said that the effect of this cooperation has not only been exceedingly favorable in the economic sense, but that it has like- wise exerted a remarkably favorable influence on the social and intel- lectual life of the people of that little country. Agricultural coopera- tion is also successfully conducted in Germany, France, Holland, Nor- way and Sweden. FUTURE OF COOPERATION IN AMERICA. It seems to me that in view of the example of successful agri- cultural cooperation in European countries, and from the fact that in 1913 in the United States and Western Canada, the business done by cooperative associations exceeded three hundred million dollars, there is no longer any doubt that agricultural cooperation will soon be successfully adopted in the whole of America. One of the chief 40 reasons why general cooperation has not met with greater success in the United States is, that it has too frequently been mixed up with social, poHtical and sometimes religious movements, not necessarily incident to the cooperative effort, and upon which there inevitably existed marked differences of opinion, thus bringing disintegration to such organizations. The last session of the Illinois Legislature passed a new coopera- tive organization act, which should encourage the organization and upbuilding of cooperative associations. Knowledge of this law should be spread throughout the State and the people urged to organize cooperative enterprises in all fields of endeavor under it. MUTUAL INSURANCE. Mutual insurance is the oldest of any of the existing cooperative institutions. All insurance in its very nature is cooperative; that is, it is a method of distributing losses which occur to certan individuals, so that they are borne by the whole community. This is accomplished by means of a fund created by the payment of comparatively small sums as premiums by each person who is to be indemnified out of the fund if loss occurs to him by the particular kind of hazard insured against. Insurance is chiefly effected in two systems: (1) by private cor- porations or other private organizations for the purpose of making profit. (3) by organizations not for the purpose of making profit such as mutual insurance companies, interinsurers, etc. It is the second class only, consisting chiefly of mutual companies and interinsurers, that are cooperative in the sense in which this term is generally used, and this is the kind of insurance in which you should take a deep interest. The earliest forms of insurance were purely mutual. About the ninth century in England and other European countries, there existed organizations or associations of merchants and artisans usually termed "guilds," exercising various functions, among which was that of reliev- ing the distress of members caused by accident and other casualties, among which were losses by fire. In the various Teutonic countries, the fire insurance function of the guilds was later assumed by organiza- tions called "brandguilden" which were in effect mutual fire insur- ance associations. These existed also in England, but appeared to have died out there long before the great London fire which occurred in 1666. The brandguilden were succeeded in part in Germany and several other European countries by public institutions which were in the nature of state insurance organizations, sometimes carried on by an entire nation, sometimes by a province, or municipality. These state institutions are substantially cooperative in principle, liot being operated for profit. In all of these countries also mutual fire insurance companies have continued and are in existence to-day. BEGINNING OF MUTUAL INSURANCE IN THE UNITED STATES. The first fire insurance companies of any kind organized in the United States were mutual companies, the first being the "Philadelphia Contributionship" formed February 18, 1752, of which the great 41 patriot, Benjamin Franklin, was a founder. This company, however, after some unfavorable experiences, decided that it would no longer insure houses which had trees in froij); of them, because these made it more difficult to fight a fire. Consequently, in 1786, the "Mutual Assurance Company" was organized to insure houses with trees in front. Both of these companies are still in existence and doing busi- ness. Following this, there were numerous fire insurance companies organized, both joint stock and mutual, in the United States. EARLY FIRE INSURANCE IN ILLINOIS. Although the records of this State are silent concerning it, there is no doubt that some fire insurance business was done in Illinois by companies from other states long prior to the formation of the first Illinois fire insurance company, which was a joint stock company known as the "Alton Fire and Marine Insurance Company," organized February 7, 1835, under a special charter of the Legislature. At the next session of the Legislature, a mutual company was chartered known as the "Pike County Mutual Fire Insurance Company" with headquarters at Griggsville, and at the succeeding session of the Legis- lature, four more mutual companies were chartered; the Illinois Mutual Fire Insurance Company with headquarters at Alton; the Fulton County Mutual Fire Insurance Company with headquarters at Canton; the Rock Island Mutual Fire Insurance Company with head- quarters at Rock Island; and the Green County Mutual Fire Insurance Company without city headquarters. The organization of insurance companies in Illinois by virtue of special charters granted by the Legislature continued until 1869, when a general act was passed by which both joint stock and mutual com- panies were organized without getting special permission of the Legis- lature for each company. Up to this time, special charters had been granted to one hundred and ninety-seven joint stock companies and forty-seven mutual companies. It is a fact worthy of remembrance, that out of these one hundred and ninety-seven joint stock companies, not a single one is still in existence, while out of forty-seven mutual companies, twelve are still in existence and doing business, which shows that the mutual principle is more enduring and reliable than any other. Mutual insurance has consequently had a continuous and steady growth in this State in the particular fields to which the present form of mutual organizations are adopted. These fields are, local township and district mutuals for farmers, where the members are mostly known to each other, and class mutuals insuring particular lines of risks such as elevators, flour mills, lumber yards, drug stores, and factories of various kinds. In these class mutuals, much attention is paid to fire prevention, and every risk is examined by competent inspectors. In this way, the loss by fire is greatly reduced. MUTUALS SUCCESSFUL IN ILLINOIS. There were two hundred and thirty-two township, district and county mutual insurance companies doing business in Illinois in 1915, and forty-six State-wide mutuals. There was in force in the year 1914 (the latest for which the figures have been received) three hundred 42 and six million, seven hundred and twenty-five thousand dollars of mutual farm insurance, which cost the policyholders at the rate of 19 cents for each $100 of insurcftice. The larger part of this insurance was fire and lightning and tornado combined. Fire and lightning insurance combined would have cost in the stock fire insurance com- panies approximately $1 per hundred, or over five times as much as the cost of similar mutual insurance. The stock company rate for the fire and lightning alone is 60 cents per annum, or more than three times the cost of mutual insurance, a large part of which also included tornado insurance. There were also a number of mutual farm com- panies which insured against windstorms only, the cost to the members averaged 13 cents per $100 as against a cost of 50 cents per hundred to policyholders for insurance against windstorms only in the joint stock companies. I am advised that the mutual companies carry practically all of the insurance on the farmers' elevators and that they have been able to return each year to the policyholders 50 to 75 per cent of the pre- mium charged, which original charge is the same made by the stock companies; also that the stock companies charged $3.70 per $100 of pay roll for Workmen's Compensation insurance in elevators which the mutual companies have been carrying at a net cost of about $1 per hundred of insurance. NECESSITY FOR STATE FIRE INSURANCE. To the larger part of the citizens of this State, however, the benefits of mutual insurance are not now available. Under present-day commercial and industrial conditions, fire insurance is practically com- pulsory. Commercial credit can not be obtained without it, nor can money be borrowed on real estate or chattel security unless the build- ings and other property are fully insured against fire. Insurance is, in effect, a tax, and no tax should be levied for profit. A loss by fire is a misfortune, indemnity for which should be supplied to the people at cost. This can only be done by some form of cooperation. It is my opinion, which I have already presented in a special report made in 1914 to Governor Dunne, that the State of Illinois should create an exclusive system of State fire insurance, which properly organized and operated would greatly reduce the number of fires which occur annually in the State, and at the same time reduce the premium to about one- half of that now collected by stock companies, because at the present time, over one-half of the premiums collected by the joint stock fire insurance companies are paid out for expenses and profit. If the business were done by the State, the expenses would only be a small fraction of that which is now consumed under present wasteful methods of stock companies. Such State insurance would not inter- fere with mutual insurance in the least unless it was able to grant the insurance at still lower rates than the mutuals, in which case there would be no objection to it by the members of the mutuals, because the members make no profit out of the mutual fire insurance business, but conduct it solely for protection. 43 RURAL CREDITS BY COOPERATION. On account of my present official position, I happen to be bgtter acqua.inted with cooperation as appHed.to mutual insurance than other forms of cooperation, yet, my early life and experience in the country and my permanent and deep interest in the farmers of Illinois and everything that affects their welfare, impels me, before I close, to venture to say a few words to you on another branch of cooperation which is just beginning to attract attention in this country. I refer to the subject of rural credits which I believe possesses great possibilities of benefit to a large part of our farmers. In most European countries, there are numerous cooperative credit organizations, such as Raiffeisen Banks, Credits ' Foncier and State Land Banks for the sole purpose of furnishing money at low interest rates to such farmers as need to borrow. On account of the high price of land in lUifiois, and short time of real estate loans as at present made, as well as high interest rates, it is practically impossible for a young farmer, without an inheritance, to raise a family and pay for a farm. What is needed is the opportunity to borrow money on short time loans at a low rate of interest to pay current expenses, buy stock for fattening, or hold crops for better prices ; or for long periods — ten to fifty years — to buy land, with provisions for repaying the principal in small installments each year with accrued interest. It is stated that the total indebtedness of American farmers is approximately six billion dollars on which there is an annual interest charge of five hundred and ten million. This borrowed capital could be furnished at much cheaper interest rates and on more liberal con- ditions by proper cooperative credit associations, than is done at the present time by existing financial institutions. The aim would be to have a perfectly safe organization in which anyone, including farmers who have a surplus, could place their money and receive a higher rate of interest than they could secure from time deposits in local banks, while those needing either temporary or long-time loans could secure same at lower rates and more favorable terms than from the banks. This would prevent the money of Illinois farmers deposited in banks being sent to Wall Street to be used in speculation, detrimental to the farmers, while money needed by other farmers must be obtained on harsh terms from outside financial institutions. SCHOOL INSTRUCTION IN COOPERATIVE METHODS. You should also use your influence with school boards and the Legislature to have regular instruction on the subject of the benefits and methods of cooperation given in all of the schools of the State, both rural and urban. This will be a great aid in edu- cating the coming generation to carry out successfully coopera- tive enterprises in every department of human activity. Under our form of government, no movement can be successful which the masses of the people do not fully understand and approve. Con- sequently, the first thing is to convince our people of the advan- tages of cooperation and educate them in the methods and details indispensable to success of all kinds of cooperative enterprises. 44 In connection with education in cooperation, the only safe and successful plan is to take up the various branches of cooperative endeavor, one by one, and establish each firmly on the solid ground of social service and financial success, before attempting another. CONTINUAL BATTLE FOR ECONOMIC FREEDOM. If this cooperative movement is energetically supported and prudently guided, I am confident that most of us will live to see the time when cooperation will accomplish as much, for the farmers of Illinois as it has done for the farmers of European countries. When that time comes, instead of supporting, as they now do, a horde of useless middlemen, Illinois farmers, together with all other Illinois producers and workers, will completely enjoy the abundant fruits of their labors, reap the full profit of their toil, be entirely emancipated from economic oppression, and not only possess the political freedom guaranteed by the Constitution of the United States and of the State of Illinois, but economic free- dom from commercial extortion which they have suffered for the past century. 45 REMARKS BEFORE NATIONAL CONVENTION OF MUTUAL LIFE UNDERWRITERS Third Annual Session, Hotel LaSalle, Chicago, Illinois, October Z5, 1915. Mr. President and Gentlemen of the Convention: I assure you that' I am honored by having been invited to address your Convention. Early in January, 1915, I made a number of recommendations for insurance legislation to the Forty-ninth Illinois General As- sembly, among which vi^as one relating to assessment insurance. That recommendation represented my position then, and I quote it now : "The operation of assessment insurance under the present sys- tem is faulty and unsatisfactory and demands remedial legislation. Two plans of assessment insurance are in use; one providing for assessments to pay current obligations; and the other providing for a so-called stipulated premium, with a clause reserving the right to increase the rate, if necessary. In the first instance, the burden ' of payment increases as the members grow older and deaths are more frequent; and in the second instance, the absence of any legal standard does not render certain the accumulation of sufiScient reserve. Provision should be made for strict supervision over assessment associations, fixing a legal standard of solvency, and limiting salaries of officers and expenses of management." That the members of your association were fully alive to the conditions confronting your system of insurance and kindly dis- posed toward corrective efforts is shown by the comment which appeared in your association bulletin on February 27, following, wherein it stated: "Rufus M. Potts, Commissioner of Insurance of the State of Illinois, has always demonstrated a friendly and intelligent inter- est in the welfare of mutual or assessment insurance. We believe that he will work with us along constructive lines. We believe also that insurance commissioners generally will give support to correct effort to place mutual or assessment insurance under the control of just laws, permitting it to build firmly and wisely for the future." Every careful observer of systems of insurance will admit that there has existed for a long time and still exists a somewhat widespread public prejudice against assessment insurance. Even many state insurance departments have reflected a doubtful feeling 46 as to this form of insurance. In your president's address at the 1913 meeting, he said: "Most insurance departments are against us and opposed to our kind of insurance. I regret to say that frequently they are justified in this. I believe the real cause, however, is that we either refuse to or are unable to convince them that mutual insur- ance is scientific, sound in principle, and sure of protection." I assure you that I do not now have and never have had any prejudice against the general principle of mutual assessment in- surance, or doubt as to its ultimate efficiency, but I, in common with all others who come in contact with this system of insurance, know that many associations operating upon this plan have been conducted in a crude and unscientific manner, while some of them seem to have been designed for the sole benefit of their promoters. The inevitable failure of such associations has resulted in the loss to members of their hard earned savings, which is not only crim- inally unfair to these unfortunate members and to healthy and honestly managed associations operating under your system, but a distinct loss to the whole community. The dependents are not only deprived of the death benefit and the anticipated protection, but of the premium paid. Any such failure causes a marked loss in prestige and public confidence to all systems of insurance as well as all legitimate in- surance organizations, hence the stability and integrity of all in- surance systems and organizations, and particularly assessment insurance, whose field of operation is largely among wage earners, is a matter of much public concern. It is my sincere desire that whatever I shall say in this ad- dress; shall be truly constructive in character, and hope it will be an aid in retaining the reliability and permanence which is impera- tive if associations operating under your system of insurance are to fulfill their proper functions. I appreciate the fact that the best minds in your association have long recognized that there have been marked deficiencies in the past operations of many assessment life companies, and I will not be presenting any new features when I mention these matters. In fact, when glancing over the proceedings of this body in past years, my first thought was that it would be superfluous for me to attempt anything along such lines, as necessary reforms had been strongly urged from within. It occurs to me, however, that a brief discussion of some of these matters may be of some assistance to you, and may aid those brave and far-seeing leaders among you who have been and are now urging such reforms as will make your system of insurance sound and entirely serviceable. To determine reforms, we must first discover and analyze the defects which demand them. [Every child born, is, by the irrevo- cable decrees of a relentless fate, subject to a sentence of death. The number of years is fixed by the unalterable laws of nature, and although the actual length of an individual life can not be foretold nevertheless the average Span of human life can be accurately cal- 4:7 dilated from a sufficiently wide experience, and mortality tables can be constructed on which a system of life insurance may be securely founded. This mortality experience or rule of average must not be defied or disregarded in the plan of any insurance organization. The defect from which the characteristic and seri- ous troubles of assessment insurance have nearly all originated, is that the method employed to accumulate funds was not always based on mortality experience. In the primitive forms of mutual assessment associations, a flat assessment was levied on each member for the purpose of paying the promised benefit whenever a death occurred. No distinction was made" between the young and the old. It was not long before the unfairness of this method was plainly demonstrated ; the younger members were grossly overcharged and the older members received much more protec- tion than they paid for. It was realized that this plan must fail, and a step in advance was made by the grading of the assessments according to age, but these assessments were only collected as they became necessary to pay expenses and death benefits. If the rate of deaths would only remain uniform or approximately uni- form, this would be the ideal plan of conducting your system of insurance, because there would be no reserves necessary, and the expense after a member was secured would be very low. Un- fortunately, however, such a condition of uniformity has not yet been reached in real practice. Take any group of members united in any society, the average age of the members was certain to in- crease, and this was accompanied necessarily and inevitably by an increase in the death rate. This, of course, necessitated the levy- ing of more frequent assessments, which soon discouraged sus- taining members and operated as a bar to new members. With the slackening or cessation of the influx of new members into the society and the frequency of assessments necessarily increasing, soon a point was reached where they became too burdensome to be longer borne by sustaining members, and bankruptcy and dis- solution followed, even on this improved plan. However, if a mutual or fraternal society could continue in exist- ence long enough, and maintain a membership so that it would not fall below a given number, the members dying being replaced by new members of approximately the same age as those dying were at the time they joined, then after the lapse of the necessary period, the great- est length of which could not theoretically be more than the difference between the youngest age at entry and the oldest age at death — and in practice would be probably a much shorter period — a time would come when the assessments would attain a very close approximation to mathematical uniformity. Thereafter no reserves would be necessary, — ^the excess paid by the younger members would balance the deficit occurring in the amount paid by the older members and would meet this deficit continuously. In such cases bankruptcy could never over- take an honestly-managed society. In fact, assessments would tend. to grow lighter because of the now well-known truth, that owing to im- 48 proved conditions of living, the virtual conquest of many of the most deadly diseases by medical science, and the mitigation of the ravages of others, the average term of human life is gradually increasing, par- ticularly in this highly favored country of ours. This attainment of uniform death rate is not a mere dream, but is an actual possibility. Unfortunately, however, all the conditions through which such loss uniformity may be brought about have not yet been attained, even by the most successful fraternals and mutual societies, and what is neces- sary to make such organizations sound and trustworthy is some plan which will carry them safely through under existing conditions, until sufficient time has elapsed and it is possible for the law of insurance average to bring about in each society or association able to maintain its membership, the condition of an approximately uniform death rate and consequently a uniform rate of assessment. It should be observed in this connection, however, that the fact that mutual societies will, under certain conditions, reach a time when the rate of assessment will be approximately uniform, does not mean that when such time is reached the rates will be notably lower than the rates required at the present time to create a sufficient reserve, to make a level premium rate possible for each separate member. Other conditioi)3 remaining the same, the uniform annual assess- ment at each entrance age incidental to a uniform annual death rate, would be the same as the annual assessment rate at each entrance age now necessary to make a level rate for life for each member through the creation of a reserve from the excess collected in his earlier years, sufficient, with accumulated interest to pay the deficiencies accruing during later years of his probable life. The only way in which the amounts absolutely necessary to be collected to pay promised benefits to all members whenever they may die can be reduced, is either by lengthening the average human life period or by lowering the expense of conducting the business, or both. Therefore, there would be no difference between the rate which must now be paid by any member to create an adequate reserve, and the rate of a similar aged member at some future time when the society will have a uniform assessment rate, on account of attaining a uniform death rate, except any loss that may occur in the reserves through bad investments or dishonest management. I wish I were able to propose some marvelous plan — ^to invent some magic formula which would enable your system of insurance to provide adequate reserves without requiring larger assessments to be made than were actually needed to pay current losses, but this is not possible m a world governed by infallible natural and economic laws which can not be changed by statutes or altered by the most fervent wishes. Consequently, the only plan I am able to suggest in this con- nection is one which has already been urged by prudent members of your association, which is, that sufficient rates be collected to create a reserve that will insure uniformity of assessment to each member for life, scientifically computed, and taking into account the age at which the member joins, and which will make certain that the beneficiarie- fortune, justice and humanity require an entirely different attitude 92 The next question is: "Is universal welfare insurance feasible — that is, practicable — in the United States?" That the theory of welfare insurance is sound and its operation practicable, is proven by the fact that it has been and is in extensive use not only in many other nations, but also in the United States. The existing systems of accident, sickness, and life insurance in the United States are all welfare insurance. Their successful operation under very unfavorable conditions proves conclusively that some welfare in- surance is feasible. EJut is universal welfare insurance feasible? There is absolutely no reason why if partial use is practicable that universal use will not be also, if the cost can be reduced to the point where every person can pay the necessary premiums and means of compulsion are available to make all those do so who are too improv- ident or obstinate to do so voluntarily. Those not able to work should be provided for by charitable methods, and those not willing to work, when they are able to do so, which comprises the great army of able- bodied beggars, tramps, criminals and prostitutes, should be^ placed and kept in farm colonies, workhouses or penal institutions according to their character, and there compelled to work at least enough to pro- duce what is needed to sustain their useless existence. This brings us to the final part of my subject — How can welfare insurance be best carried on? I have, I believe, considered and weighed every plan and sugges- tion that has been made in this connection, and I am obliged to say that so far, I have only found one plan which holds out substantial promise of accomplishing the desired purposes. This is the carrying on of a comprehensive system of compulsory welfare insurance, in all of its branches by the National Government. While, of course, some reduction of the expense of conducting the insurance business under existing systems might be brought about by feconomy and efficiency, still with the excessive acquisition and administration costs, by reason of high salaried officials and a great army of middlemen, the cost will always be exorbitant. A compulsory system of welfare insurance car- ried on by the National Government, will not only reduce the expense of operation to a minimum, so low that it will be negligible, but will render it feasible and proper for the Nation to contribute, in behalf of those earning low wages, a part of the dues necessary on actuarial cal- culations to pay for complete welfare insurance. Above all, only by a National system can the compulsion be employed necessary to force the improvident and obstinate to make provision for their families and themselves when overtaken by misfortune. The insurance of all the workers of. the United States would include such enormous num- bers that an almost unvarying law of average would result which would render the business as stable and certain as agriculture. The Nation would be entirely justified in paying the expense of conducting the business and of making such contributions of a part of the prem- iums should same be found necessary, in case of those receiving a low income, because of the increase of production through greater individ- ual and industrial efficiency, and also because it would greatly diminish the necessity for charitable relief. 93 There would also be the same justification for the expenditure of funds raised by taxation for this purpose, as for spending such iunds to support the Department of Agriculture, the Fisheries Bureau, the Mining and the Geological Bureaus, and the mainten- ance of lighthouses and making of harbor and waterway im- provements. They all contribute to the general welfare of the people of the United States which justifies their existence. It is admitted that the compulsory element of a welfare in- surance system implies that there is a considerable proportion of the people who do not have sufficient self-control, foresight and thrift to voluntarily take advantage of the benefits of welfare in- surance, even when the plan includes contributions from employers and subsidies from the government. This is unfortunate and dis- creditable, but is an unalterable fact of human nature which must be taken into account in considering social plans, because in modern times, even the thriftless and reckless can not be abandoned to perish by starvation and disease when unable to earn their own support. Therefore, compulsion should be applied to the thriftless, to force them, at least, to assist in making provisions for the emer- gencies which will certainly later occur to many of them. It is coming to be generally admitted by those most competent to judge, that for any branch of welfare insurance to even approx- imately fulfill its purpose by furnishing protection to the classes most needing the same, that it must be made compulsory on all who can not furnish proof, that they have otherwise made provision for their dependents and themselves against all the emergencies which bring disaster to those without means. While an essential feature is that welfare insurance be com- pulsory, this need not mean that a man would be required to insure with the National Insurance Office, if he could show that he had in some other way made secure provision for himself and family. This might be either by insuring in a reliable and approved insur- ance corporation, or mutual association, or by the possession of sufficient property for that purpose. In the latter case there should be some provision by which sufficient property, either real or per- sonal, would be required to be set aside for this purpose similar to a homestead, so that it could not thereafter be alienated or divested by judgment or otherwise, unless other property was dedicated to the same purpose in amount sufficient to afford protection to the individual and his dependents equal to a certain minimum of in- surance. In this connection, I desire to briefly call attention to the little understood, but extraordinary results, which can be obtained in the way of old age annuities through the. payment by the individual himself of comparatively small sums of money early in life, pro- vided an absolutely, secure and inexpensive institution is available to receive, care for, and disburse the funds. This arises from the remarkable accumulations effected by compound interest in con- nection with the lapse of a great number of years. 94 There are two plans for such self-provided old age annuities. One is the "reserve-capital plan," in which, if the person dies be- fore the date at which the old age annuity would begin, his heirs receive back the money which he has paid. The other is the "alienated-capital plan," in which no money is returned excepting to those persons who attain the given age. For example, on the "alienated-capital plan," one payment of $100 at 30 years of age will secure an annual pension of $97.27 for life after 65 years of age, while on the "reserve-capital plan," one payment of $100 at 20 years of age will secure an annual pension of $70.58 for life after 65 years of age. In the latter case, if the person making the payment dies before at- taining such age, the payment he has made will be returned to his heirs. If a parent wishes to provide for the old age of his children, still more remarkable results can be obtained. One payment of $100 at 3 years of age will provide each year for life, after attaining the age of 65 years, $190.32 on the "alienated-capital plan," or $152.92 on the "reserve-capital plan." There is no excuse for every able-bodied man not making pro- vision for his old age and if married, for that of his wife, in this way, except ignorance or lack of an absolutely secure institution for that purpose. There are practically no able-bodied wage earners who, before marriage at lea^t, do not waste a sufficient sum every year, which in one year alone, if paid for such annuities, would provide an annuity for the worker's entire old age. A general system of welfare insurance would furnish the abso- lutely secure institution for receiving the initial deposits and paying out, when the time came, these old age annuities, and hence, any able-bodied man who had knowledge of the extraordinary results of such a plan of providing old age pensions and the opportunity of making such provisions by reason of the existence of a secure institution for that purpose, but nevertheless failed to do so, would have absolutely no right to complain if compulsion forced him to make such provision. While compulsion in general is somewhat objectionable to Americans, but it can not in any sense be as objectionable as the suffering which results from improvidence, and there should not be any reluctance to apply compulsion to those so reckless, un- grateful and improvident as not to take advantage of either a rea- sonable amount of insurance in an expense-free government sys- tem, or too thriftless to accumulate enough property for protection against accident, sickness, old age, unemployment and premature death. Compulsion is now used to enforce education, sanitation, fire prevention, food supervision, traffic regulation and in fact obedience to all laws. Sentimental objections to the absolutely necessary compulsory feature should not be allowed to prevent the inestim- able benefits of universal welfare insurance. That a general system of successful welfare insurance is pos- sible, only when carried on by the nation is, I believe, conclusively 95 proven by the fact that in all nations where it is in operation, it is •effected in this way. This is true of the almost complete systems now in operation in Germany and England, and also of the less complete systems of other European countries. This method has been adopted also in Australia, and in the states of Washington and Ohio in regard to workingmen's compensation. An objection certain to be loudly and insistently urged, is that a national system of welfare insurance would interfere with pri- vate business. When a private business which is for the purpose of supplying fundamental needs of the people has failed to perform its function at a reasonable cost, it then clearly becomes the duty of the government to assume the operation of such business. Tempo- rarily some insurance middlemen may lose employment, but no man has a vested right to make an easy living by performing an un- needed function which increases the expense of a beneficent insti- tution. By reason of the great extension of insurance to the "whole people which would occur by creation of a compulsory national system, em- ployment will be given to many now employed under the private system who are skilled and capable, although, of course, there would be no $25,000 to $100,000 salaries paid to agents or officials as at present. The howl about welfare insurance interfering with private business comes from extravagantly paid men who would be supplanted by gov- ernment officials at moderate salaries, and stockholders who realize they could not get such enormous dividends on their investments in any other business. A complete system of welfare insurance by bringing about, as it would, the collection of accurate and complete statistics con- cerning the occurrence and a study of the causes of accidents, sick- ness, involuntary unemployment and other destroyers of human welfare, would be an immense incentive to and aid toward, pre- ventive measures against all of these misfortunes. This has oc- curred in connection with accidents insured against by workmen's compensation which is one branch of welfare insurance. Similar preventive benefits will occur in other branches of welfare insurance. The accumulation of knowledge concerning sickness, pre- mature death, involuntary unemployment and similar causes of dis- tress would certainly result in better human conservation and social upbuilding through a Nation-wide system of sickness prevention, the establishment of a complete national system of employment bureaus, and similar institutions for increasing human welfare. Mr. Miles M. Dawson, an experienced actuary, says that since the extensive social insurance system of Germany went into operaton, the average length of life in that country has increased twelve years. Welfare insurance is a plan whereby all, through the operation of the law of average, help without hardship, to bear the heavy burdens from misfortune that befall the few. The community at large, how- ever, has not grasped the conception or realized the fact that it is possi- ble, by means of a proper system of welfare insurance, to distribute the financial effects of all of the misfortunes which afiflict humanty in such a way that they will be easily borne by all. What is needed is educa- 96 tion of the whole people, until each citizen realizes its benefits and practicability. Communists as well as extreme socialists, maintain that the pres- ent industrial and economic system is responsible for all poverty and destitution, and that if the existing system was destroyed and some plan of their own substituted, that all suffering from lack of means of livelihood would be forever banished from the world. Brief consider- ation, however, will show the falseness and absurdity of such a conten- tion. As long as machinery is used, as long as sickness and disease have power over mankind, as long as liability to disablement in earlier years and certainty of incapacity to work in old age exists, no change, however radical, of our industrial system, or even the destruction of the entire system of private property for productive purposes would prevent the effects of calamities from being heavy burdens for those numerous and unfortunate members of society who happen to be the victims upon which misfortune falls. Nothing short of the miraculous and universal interposition of Divine Power to render human nature perfect, to cause the operation of vast and complicated industrial enter- prises with all attendant machinery to become absolutely free from danger, and also to prevent all disease, would be sufficient to avert the recurrence of these misfortunes day after day and year after year, as long as the troubled river of time flows into the sea of eternity. It is possible that some of these misfortunes might be escaped by going back to the savage or barbarous stage of society in which, there being no machinery, there would be no industrial accidents ; and where the un- mitigated forces of nature would work such an elimination of the weak, that there would be little disease and where, because there was nothing to work for, unemployment would be without terror. No sane man, however, expects that miracles will be wrought in this age, nor does he desire a return to the savage stage of society. On the other hand, he can not reconcile himself and his ideas of justice to a continuation of present conditions in which, although it can be fore- seen with absolute certainty that misfortune in various forms will in- flict cruel suffering upon a considerable portion of the community each year, no provision is made against the effects of such misfortune. A universal system of compulsory welfare insurance carried on by the people themselves, through their government, would furnish an equit- able and financially practicable system which would at the same time prevent suffering from unavoidable misfortune and preserve the ines- timable benefits of our present industrial and social system, while also permitting and favoring gradual changes of that system to adjust it to changing conditions brought about by constant progress. We must never lose sight of the fact, that the enormous modern increase in the complexity and scope of our industrial and social organization, have unhappily also increased the liability of many unfor- tunate members of the community, to lose temporarily and even in a few cases permanently, the ability to secure food and other primary requisites of human welfare. This liability renders precarious the maintenance in reasonable comfort of humah life which is the funda- mental aim of civilization. Visionary and irresponsible persons have seized on the distress and discontent which the existence of such con- ditions inevitably cause, as an opportunity to propagate doctrines which would mean the speedy disintegration and ultimate destruction of our wonderful modern civilization, which it has taken centuries to build up. They have secured some following and boast they will soon sweep the nation. Consequently, not only as a matter of humanity and justice, but also as a means of preserving our precious civiliza- tion and the hard- won liberties we enjoy in the United States, 1 urge you all to assist in removing all just cause of discontent by rendering the economic welfare of every honest worker secure and stable through universal welfare insurance. This will destroy the power of those demagogues and shirkers whose real motive is to get a chance to feed on the accimiulated result of the labor and thrift of others, but who use as a pretext the large amount of otherwise unavoidable suffering growing out of the complexity and defects of modern indus- trial and social organization. The PRESIDENT. This matter is now open for discussion and consideration. Mr. Potts, I am sure, will be very glad to have the matter discussed and will be glad to answer any questions any of yon wish to ask. Dr. JORDAN of the United States Treasury Department. I would like to ask the author of that interesting paper how he would expect to accomplish that result. Is it possible, under the Constitution of this country as now written, that that form of insurance could be nationalized, or would it be necessary to secure an amendment to the Constitution to effectuate the plan which he has in mind? Mr. POTTS. Briefly, I wish to say, that I am thoroughly con- vinced that the plan suggested in my paper is not only practicable, but is entirely within the provisions of the present Federal Constitution. The preamble, in setting forth the fundamentals of the Constitution, con- tains the clause "promote the general welfare," and in the body of the Constitution, Congress is required to provide for the "general welfare" of our people and of the United States, and, in my judgment, welfare insurance comes clearly within the present "welfare" provisions of the Constitution. — 7 P S UNEMPLOYMENT INSURANCE. Address Before the Forty-first Anhual Meeting of the American Academy of Medicine, at Detroit, Mich., June 9, 1916. The bfanches of insurance which youf association has under con- sideration this afternoon, are now collectively termed "social insur- ance," but were formerly called "workingmen's insurance." The latter term, however, dropped out of use, being inappit)t)riate, because such insurance was used by many other classes than manual workers. I believe the name social insurance is unsuitable -also. The asso- ciation of ideas causing its use is rather far-fetched, but worse, it has, for the general public at least, an unfavorable and erroneous a!ssocia- tion with the name of the political party called Socialists. The effect of this in producing a hostile initial attitude in the minds of most members of other political parties, is as bad as if it were called Republican, Progressive, Democratic, or Prohibition insurance. For these and other reasons, I believe it highly desirable to have a new collective name of these branches of insurance, and I propose "welfare insurance." . This name is accurate, for it describes fully and cor- rectly the aim of all of the kinds of insurance included. Neither has it any hurtful association with the name of any political party or doctrine. Welfare insurance, then, is the use of insurance principles and methods for the purpose of supplying pecuniary resources neces- sary to maintain each citizen of the United States in a state of well- being throughout the various misfortunes and emergencies of life, which would otherwise destroy his well-being and cause in its place destitution and suffering. _ I believe that the substitution of the name welfare insurance for social insurance would be of immense service in bringing about its favorable consideration by the people in general, and its ultimate adop- tion which can only be secured through their approval. Turning to unemployment insurance, that branch of welfare insur- ance which is my subject, we find that in the earUest stages of civiliza- tion, there was no unemployment problem. Slaves did most of the work and their complaint was not lack of work, but too much work. In such nations, however, as the ancient Hebrews, where there was little slavery, but where sufficient industrial development had occurred, so that some men could not alone do all their work, but found it neces- sary to hire others, the two economic classes of employer and employee came into existence and maladjustment between the needs and wishes of the two classes inevitably arose. On the employer's side, this was lack of sufficient workers or of competent workers, and often occurred. On the employee's side the imperfect adaptation was lack of remuner- ative employment, which attracted attention nineteen hundred years ago, for it was mentioned by our Saviour in his parable about the laborers in the vineyard as follows: And about the eleventh hour he went out and found others standing idle and saith unto them: Why stand ye here all the day idle? They say unto him, Because no man hath hired us.' It is an industrial phenomenon entirely independent of race or country. Over a thousand years ago, Wang Ngan Shih, a Chinese statesman, enunciated a set of fundamental principles, based on the experience of that nation, which he held should be observed by govern- ments. One of these was: "A state should insure work for workmen," which shows that unemployment even at that early time, had become a problem in China.^ In considering unempfoyment then, we are not dealing with a new problem, but the rapid changes in the methods of industry during the past 150 years; sometimes called the "industrial revolution," having caused it to attract more attention from law makers and students of public affairs than formerly. This increased attention is also partly due to the steady growth of democracy throughout the world, and to the invention and adoption of new and more humane and effective methods for dealing with misfortune and relieving or mitigating result- ing human misery. Unemployment is a word which is its own definition, for anyone knowing the English language understands that it is the state of not being engaged in useful and remunerative labor. Unemployment is of two kinds : voluntary, where the individual does not have the desire to work; and involuntary unemployment, where the individual is will- ing to work and able to work, but can not get work. The first class may be called "won't works," the second-class "can't find works." What proportion of the unemployed belong to the "won't works" and what to the "can't find works," is not shown by general statistics. In the winter of 1913-14, however, a special study was made of two thou- sand unemployed men in the municipal lodging houses of New York City. From this it appeared that about 35 per cent of those homeless men were unemployable. Some of these were physically and mentally disabled, others habitual loafers confirmed beggars or petty criminals. The remaining 65 per cent were willing and able to woi'k. The pro- portions of these two classes vary from time to time. In good times, such as prevail at present, the unemployed will be practically all "won't works," while in hard times, a great majority will be "can't find works." Any extended discussion of measures for dealing with voluntary unemployment do not come within the scope of this article. The physically disabled should be relieved by charity. The much more numerous class of vagrants and incorrigible loafers; the vicious and criminal should be firmly dealt with by being placed in farm colonies or other institutions where they can be and will be compelled to work, at least sufficiently, to produce the food and supply the other necessi- ties of their useless existence. 'Matthew, 20:6-7. 'Matthew, 20:6-7. 'China Revolutionized, J. S, Thomson, p. 557, 100 Qur attitude should be very differeaat toward those unfortunate workers who are suffering from involuntary unemployment; who are able and willing to work but can not find work. Our first inquiry as to them should be to find, if possible, what are the causes of thdr involuntary unemployment. Unemployment arises from the incapacity of industry to absorb the whole supply of labor at any given time. A brief study of the cause of this incapacity will convince everyone, that the waves of great prevalence of unemployment occurring at intervals of several years called "hard times," as well as the considerable amount of chronic involuntary unemployment, are in the last analysis due almost wholly to the imperfect adjustment of production to demand. The organiza- tion of industry is still crude, awkward and full of defects, so that irregularities continually occur in the amount of work offered. There is no inherent necessity that this should be so. If production and dis- tribution were properly adjusted, there would always be a demand sufficient to consume all the time, all the products, that all the workers of the world could produce. You will, I believe, realize the truth of this in a moment without extended argument, if you reflect how practically limitless are human wants and desires. I do not suppose there is any man or woman in this audience, much less in the general population, who is able to obtain all the commodities that he or she desires. Although it is easy to see that every member of this audience is clothed in fine raiment and no doubt each fares sumptuously, and rides in automobiles every day, nevertheless, I doubt not that each of you cherishes unfulfilled wishes for things someone else could malce, and would be glad to make, and sell you. I know, you know, everybody knows, that even in our own fortu- nate land which is not affiicted by war, or pestilence, where the most fertile soil produces perennially in rich abundance, there are to-day thousands, yes millions, who can only get scanty and unpalatable food, who can only secure the poorest and coarsest clothing, who in sickness must go without physician's and nurse's care. There are many, many more who have a fair measure of these necessaries, yet live barren lives without books, or music or opportunity of recreation or travel and innumerable other things which make life pleasant. This infinite number of legitimate but unfulfilled wishes and needs, proves that it is only by teason of serious defects in our present industrial and social organization, that anyone willing to work to supply these n^eds, is unemployed. Subsidiary causes of involuntary unemployment are lack of knowl- edge of the worker where work is,; lack of means whereby the worker can transfer himself cheaply and rapidly from one job to another; seasonal occupations; the temporary displacement of workers by new machinery ; lack of .adaptability to new work on account of old age or mental or physical weakness ; lack of industrial training, either in youth or adult hf e ; over-specialization which confines the chances of employment to small subdivisions and particular operations of indus- try ; and irregular buying habits of consumers. All of these causes of unemployment are absolutely beyond the control of the individual worker and can only be regulated by collective action. ^UGi 101 ^917 The effect of unemployment and the resulting lack oTprtrpeffood, etc., upon -workers does not require any extended description or expla- nation, least of all to physiologists. The human organism, unfortu- mrtdy, is not like a steam engine in which the fires can be extinguished and then allowed to stand cold without expense until put to work again. The human mechanism requires continuous supplies of fuel in the form of food, as well as clothing, and other necessaries. If it once stops and grows cold, the most expert physician in the world can not start it again. Unemployment inevitably causes suffering and deterioration, and is always followed by an increase in pauperism and crime, and so is a direct economic loss. In those cases where the worker has been able to accumulate some money in a savings bank, by investment in a home, or otherwise, as long as such resource holds out, neither he nor his family will endure physical sufferings. But there is a great number who have no such accumulations, and such aiS do have them, must exhaust them sooper or later, so that poverty and hunger are certain unless some means of prevention or relief can be found. Before proceeding to the consideration of the methods of dealing with unemployment, we should have some reliable information as to the amount of unemployment during the whole year, and at the par- ticular seasons of the year. When we come to examine this branch of the subject, we find, however, that there are no such statistics cov- ering the whole of the United States, and but little for smaller areas. Even with all the facilities at the command of the United States Bureau of Labor Statistics, its chief is obliged to say : To the frequent question as to the amount of unemployment in this country the reply must be made that the statistics do not make possible any estimate of the number of unemployed persons in the United States at any time.' Some statistics have been accumulated in New York and Massa- chusetts as to unemployment among the members of labor unions, but they cover only a part of the working population and show such dis- crepant results that no general inferences can be drawn from them. They have, however, some value as being for two typical indus- trial states representing the best that has so far been obtained in the line of unemployment' statistics in the United States covering as much as a whole state, so that I present them for what they are worth. It will be observed that these tables show a wide difference between the results in these two adjoining states ; I have not seen any reasons given for this and I am unable to suggest any myself. NUMBER AND PERCENTAGE] OP MEMBERS OF LABOR UNIONS IDLE IN THE STATE OP NEW YORK AT END OF MARCH AND SEPTEMBER, 1897 TO 1911. Idle at the end of March. Idle at the end of September. ' Percentage Percentage Number Percentage in repre- Number Percentage in repre- in all inall sentative in all in all sentative ^ars. unions. unions. unions. unions. uniolns. unions. JlJ97 43,654 30.6 21.0 23,230 22,485 13.8 1*98 38,857 10.3 ItVS 31,751 18.3 9,590 4'. 7 1900 44,336 20.0 31,460 13.3 1901 42,244 18.5 18,617 6.9 1962 36,710 13.6 17.3 18,377 5.7 6.3 'Bulletin 1909, U. S.. Bureau of Labor, p. 6 (1912). 103 NUMBER AND PERCENTAGE OF MEMBERS OF LABOR UNIONS — Concluded. Idle at the end of March. Idle at the end of Septembpr. , • , » ^ > Frecentaee Percentage Number Percentage in repre- Number Percentage, inrepre- in all in all sentative in all in all sentatiTe Years. unions. unions. unions. imions. unions. unions. 1903 41,941 12.1 17.6 33,063 9.0 9.4 1904 101,886 2?. 6 27.1 36,605 9.8 12.0 1905 54,916 15*1 19.2 17,903 4.8 5.9 1906 37,237 9 .» 11.6 21,573 5.7 6.3 1907 77,269 19.1 18.3 42,658 10.5 12.3 1908 138,131 35.7 37.5 80,576 22.5 24.6 1909 74,543 21.1 23.0 36,968 10.3 14.5 1910 62,851 16.1 22.6 63,106 13.6 12.5 1911 96,608 20.3 25.6 50,390 10.8 11.2 NUMBER AND MEMBERSHIP OF LABOR ORGANIZATIONS REPORTING AND NtJMBER OF MEMBERS AND PERCENTAGE OF MEMBERSHIP IDLE AT END OF QUARTERS SPECIFIED, MASSACHUSETTS, 1908 TO 1911. Idle at end of quarter. Number Reporting r * \ Quarter ending. unions, members. Members. Percentages. Mar. 31,1908 ' 256 66,968 11,987 17.90 June 30,1908 / 493 72,815 10,490 14.41 Sept. 30, 1908 651 83,969 8,918 10.62 Dec. 31,1908 770 102,941 14,345. 13.94 Mar. 31,1909 777 105,059 11,997 11.42 June 30,1909 780 105,944 6,736 6.36 Sept. 30,1909 797 113,464 5,451 4.80 Dec. 31,1909 830 107,689 10,084- 9.36 Mar. 31,1910 837 117,082 8,262 7.06 June 30,1910 841 121,849 8,S18 6.99 Sept 30,1910 .- 845 118,781 6,624 5.58 Dec. 31,1910 862 122,621 12,517 10.21 Mar. 31,1911 889 122,002 12,738 10.44 June 30,1911 897 135.202 8,927 6.60 Sept 30,1911 975 133,540 7,527 5.64 Dec. 30, 1911 905 125,484 12,167 9.70 An attempt has been made to get some idea of the amount of unemployment by another method. Taking a selected list, of manu- facturers for the year 1909 according to the reports of the Census Bureau, a table was constructed which gives what percentages the employment for the month of least employment in them all," was of the amount of employment in the month of greatest employment. This list contains 261 industries and shows that on an average the amount of employment in the month of least employment was 88.6 per cent of the amount of employment in the month of greatest employment; that is — 11.4 per cent of unemployment in the worst month." The aver- age number employed during the year in the manufacturies concerned in the above list was 6,615,046, so that in them the total unemployed in the worst month was approximately the immense number of 754,000.^ A witness at a hearing before a congressional committee, who testified that she had been engaged in the study of the question of unemployment for eight years in Europe and the United States, says, in relation to the relative amount of unemployment in the United States compared with other countries: I would like also to say that the problem in America is more serious than in Europe. Not more than 10 or 15 years ago it was the general belief that there was no problem of unemployment in America such as there was in Europe. As a matter of fact, it is a much greater problem here than in Europe. The percentages of trade-union unemployment in New York and Massachusetts indicate that American unemployment rises to heights that » Testimony of Miss Juliet Stuart Poyntz, pp. 52, 60 and 61, Report of hearings before Committee of Labor, House of Representatives, 64 th Congress, 1st Session, on H. J. Res. 159. 103 are unknown in Europe; that if unemployment is an evil in Europe it is a much vaster and more, serious evil In America. It might be pointed out that speculation makes industrial changes much more rapid in this country and that transitions in our industries result in greater fluctuations. There are great fluctuations in all the industries affected by style, as, for instance, in the garment and boot and shoe industries, which are developed in this country to a much greater extent than in Europe. Unemployment is pecur liarly our problem. If all the countries of Europe have been interested in this problem, America should be certainly. During the great crises which have swept over the countries of Europe within the last two decades the trade-union unemployment percentages have rarely risen above 10 per cent, whereAs in the United States the general percentage of unemployment has risen above 20 and even 30 per cent.* According to the census of 1900, the number of persons unem- ployed at some time during that year was 6,468,364, of whom 3,177' ,735 lost from one to three months, and 3,554,923 from four to six months.^ 'According to the census of 1910 there were in round numbers, 6,000,000 persons who were unemployed at some time during, the year, but concerning these figures, the Commissioner of the Bureau of Labor Statistics says : In regard to the amount of unemployment "we know almost nothing. Those figures by the census are estimated, at best. They are taken in the month of Afril, and in that month the various people interviewed by the various agents of the Census Bureau are required to estimate if they were out of employment during the past year, and if so, how long. Now, I submit that that is extremely precarious data upon which to build any very elabo- rate superstructure, for those estimates are extremely inaccurate for they include . guesses at all unemployment from all causes — voluntary idleness for the purpose of taking a vacation, idleness due to sickness or other disability, idleness due to strikes or lockouts — in short, the census figures include everything that was In your mind, I think, when you put your question, Mr. Congressman. Nobody knows whether 6,000,000 people were out of employment part of the year 1910, or whether 10,000,000 people were out of employment part of . the year, and nobody knows anything about the industries and occupations aiected, and nobody knows anything about the periods of idle- ness of these men and the causes of idleness." More valuable information can be obtained from more limited investigations of unemployment. In the early part of 1915, the United States Bureau of Labor Statistics made a complete census of 104 representative city blocks located in various sections of New York City," the less populated as well as the more congested section, and in addition of families living in 3,703 individual tenement houses and residences also widely distributed. This showed that 16.3 per cent of the wage earners in these families were unemployed, and on this basis it was estimated that the total number of unemployed in New York at that time was approximately 398,000. In January, 1915, the Metro- politan Life Insurance Company made a census of all the families which held industrial policies in that company in greater New York through the agents who make the weekly collections. This showed that 18 per cent of the wage earners in the families canvassed (37,063) 1 Testimony of Miss Juliet Stuart Poyntz, pp. 60 and 61, Report of Hearing's before Committee of Labor, House of Representatives, 64tli Congress, 1st Session, "Testimony, Dr. B. A. Sekely, p. 15, Rep. of Hearings before Committee of Labor. House of Representatives, 64th Congress, 1st Session, on H. R. 5783. •Testimony, Mr. Royal Meeker, p. 29. Report of Hearings before Committee of Labor House of Representatives, 64th Congress, Ist Session, on H. R. 5783. 104 were unemployed. The same company also made a similar canvas of its policyholders in northeastern New Jersey adjacent to New York City, including Bayonne, Bloomfield, Newark, Hoboken, Irvington, Jersey City, Orange and Union Hill. In these cities it was found that 14.8 per cent of the wage earners were unemployed. It is, of course, certain that the conditions at present are quite different from those existing at that time. About all that statistics establish is that at certain times there are, in the United States, immense numbers of unemployed workers, sometimes running up into millions. This much is absolutely certain and should be sufficient to convince us that unemployment causes immense undeserved suffering and also to impel us to earnestly seek remedies. The best way to deal with unemployment like disease is by prevention. It is_ a hundred times better to prevent workers being thrown out of work when possible, or to at once furnish them another position, than merely attempt to relieve their destitution result- ing i rom unemployment. Since, as we have seen, the fundamental causes of unemployment are defects in our industrial and economic organization and the irregu- larities of labor demand resulting therefrom, the primary thing is to reorganize our industrial and economic systems so that these irregu- larities will not occur. This is the great question of the present age, but unfortunately no agreement has been reached about what should be done, or how it should be begun, although numerous political par- ties have written platform planks about it, and innumerable politicians, reformers, statesmen, philanthropists, religious teachers and philoso- phers, have given it their earnest attention. I will, of course, not attempt to solve this problema problematorum (problem of problems) for you this afternoon, but will leave it for those earnest souls bravely struggling with it. I will only venture to suggest that much has been done to regularize labor demand, by the voluntary efforts of employers to so carry on their factories or other industrial enterprises, that their working people will be furnished employment throughout the year. In those industries where the irregularities arise from the seasonal causes, as in agriculture, construction work, building trades, etc., something can be done by arranging industries so that when one stops another will take its place and furnish employment to the workers. In the building industries, for instance, it ought to be feasible to employ the workers during the winter season in sawing lumber, making structural iron work, brick under cover and other building material to be used by the same workmen in erecting buildings the coming summer. The problem of the agricultural laborer is of course more difiieult, but if American agriculture was carried on as it should be, so that the products of the soil were manufactured on each farm into eggs, meat, canned goods, dairy and other finished food products, work could be found for most of the workers throughout the whole of the year, and at the same time the returns to the farmer would be increased, and impoverishment of the land by shipping away the grain and forage raised thereon prevented. These are merely random suggestions. It would require many years of careful study and experimentation to work out a complete system, but I believe it can be done and, in con- nection with agricultural cooperation, would do more for our farmers, and incidentally for all classes, than any other one thing conceivable. 105 One of the indispensable prerequisites to such industrial regUlar- ization is the improvement and cheapening of all branches of our transportation system. This will aid both in the transportation of workers from place to place, and by the continuous, rapid and cheap transportation of the products of farming and other industries in small parcels direct to consumers, instead of irregularity by carloads and by trainloads, as at the present time, to one middleman after another. Another, and probably the most important, means of preventing unemployment is the organization of a complete network of efficient free labor agencies covering the whole United States with complete records of all calls for workers everywhere, so that the willing worker can readily find the places where his services are in demand. There should also be some provision, by which a laborer traveling to find work could do so at very cheap railroad fares, and find very low- priced and wholesome board and lodging while doing so. Such a system of labor exchanges has been developed in Germany where it has been of immense service. In the management of the German bureaus are included representatives of all classes concerned, and com- bined with them are frequently shelter, lunch rooms, waiting rooms, reading rooms, etc. There is spent in the United States, at the present time, in sup- port of various labor agencies, exchanges, etc., public and private, an amount of money sufficient to support a nation-wide and efficient system, if it was properly organized under one management with full correlation by immediate telephonic or telegraphic exchange of infor- mation between all parts of the United States. I believe that this can only be effectively done by the National Government. The labor demand, like commercial demand, is no respector of state boundaries. In order to find work, laborers must pass freely from state to state, and this they can only do when they have the information covering all of the states available at any labor exchange where they may happen to be, and while, of course, it is theoretically possible to exchange information between state employment agencies, practically, such a system could not accomplish the purpose with any approach to the ^ciency of a national system. Another method of lessening unemployment is the carrying on of such work as building canals, highways, harbor improvement, irriga- tion and drainage works, reforestation and many other kinds of public work during slack times. This, of course, would involve planning ahead and thorough organization of all of these governmental activi- ties, but if sufficient political and social foresight were used, great relief would be afforded in panics when millions of workers are sud- denly thrown out of employment. Interesting suggestions concerning relief by public works, etc.,. are given by the recommendations made by the Unemployment Advisory Board of New South Wales, calling for the creation of: 1. A national intelligence department for men and women. 2. Labor depots, where the unemployed can be temporarily sheltered and employed. 106 3. Industrial farm settlements — an expansion of the labor 4epot, wlierfl the men are given work and technical instruction. 4. Assisted settlement blocks, where the men who graduate from the industrial farm settlements are given farms of their own. 5. Compulsory labor farms for the vagrants. 6. Subsidies to mineral prospectors, advances to settlers, allotment of land to societies formed to settle cooperatively, treasury advances for the establishment of cooperative industries in the assisted settlement blocks, and instructions in agriculture in the primary schools. Another method of dealing with unemployment is so-called "relief work." This is something done solely for the purpose of furnishing support to the unemployed. It has not been very successful and is usually considered as a disguised form of charity. But in some of the industrial crises such as that of 1907, something of the kind appeared to be necessary.^ For dealing with such unemployment as remains after a faithful application of such preventive measures as I have just described, instead of charity the most effective way is by insurance methods. I suppose there is not a person here who does not have some understand- ing of the theory of insurance so I will only need to say that insurance in general is a legitimate and well tested business method which, by collecting contributions from each one of a large number ai individuals liable to suffer loss from uncertain occurrences, creates a fund; out of which the losses to such of those individuals to whom the contin- gency occurs will be paid, and in this way distributes throughout the whole number insured the burden to the few unfortunates actually suffering loss. The late Chief Justice Ricks, of the Supreme Court of Illinois, in the course of a decision involving the question of the interest of the public in it, gave the following eloquent characterization of the business of insurance which I can not improve on : The business of insurance is the outgrowth of time and the demands and necessities of the public. It extends Into and covers almost every branch of business and all the relations of life, and is applied to all the hazards of business in life where a basis of risk and compensation can be estimated. In all the stages of life, from the cradle to the grave, it' asserts an interest and offers succor and aid. In the business enterpHses, whether by land or sea; in the possessions of men, from a pane of- glass to the mansion or the factory; in his undertakings involving every chance, .mis- fortune, moral turpitude or the act of God, It demands admission and prom- ises indemnity, reward or gain. It poses as the faithful and zealous trustee of his earnings and savings, and promises to the widow and orphan a guar- anty against misery and want. It intercedes between principal and agent, master and servant, contractor and owner, and insures against loss from almost any and every cause. It is a public necessity that deals in its own credit for a cash consideration from the assured, and is stamped with public interest, and must yield obedience to necessary and proper regula- tions by the State in the exercise of its police power.' Although, there are, of course, difficulties, there is no inherent impossibility in making provision against the effects of uriemployment by insurance methods. This is proven by the fact that a nation-wide 'A very Instructive account of the pracUcal and etfecUve methods In use in Switzerland for dealing with the unemployment problem Is contained In an arUcle by Bditti Sellers in Nineteenth Century, 64 :763, reprinted In volume on Unembloy- ment in "Debaters' Handbook Series." 'North American Ins, Co. v, Tates, 214 111., 272 (276). 107 unemployment insurance system is now in successful operation in England, with local unemptoyment insurance systems in various other European countries, while even in the Urlited States this function is to some extent fulfilled by some of the labor unions. Unemplo)rment insurance ttiay be carried on in two ways: the voluntary and the compulsory. The voluntary form is carried on by associations or organizations of workers in a particular industry or trade, and usually is a part of the activities of an ordinary trade union which collects benefit funds to be paid to its members when out of employment. In some places in Europe these voluntary associations are subsidized or given aid by the state, the city or other political division. This subsidy is usually in the form of a certain percentage thereof added to the contribution made by the organization. This is usually known as the Ghent system because it was first used in the Belgian city of that name. The contribution by Ghent was 60 per cent ot the amount contributed by the union. The city also maintains a municipal labor exchange in the management of which the unions and the employers have eQUal representation. Any workman desiring to obtain the unemployment benefit must report at the labor exchange that he is unemployed and it endf^vors to find work for him. Not until the bureau has failed to obtain work for him can the workman obtain money from the unemployjijent insurance fund. This plan or some modification has been adopts^ in many of the cities of Belgium, 25 cities in Holland, 20 in France, 10 in Germany, 3 in Italy and 2 in Switzerland. In favor of the Ghent or similar §ystem, are the ease with which it can be administered through existing agencies of labor unions, and the fact that all claims go through the hands of union officers who are familiar with all the features of the labor market, in the trade in which the applicant works, which diminishes opportunities of fraud, and that it results in encouragement of individual thrift and initiative, because it only helps those who are willing to help themselves. On the other hand, it is urgeq by some that it is wholly improper for the government to subsidize labor unions as in the Ghent plan, because, according to their own statement, they are fighting organiza- tions, so that subsidies out of public fund would amount to taxing employers to pay the expense of men who are opposing them, which would be absolutely unjust. Also that the cost of a system of unem- ployment insurance is very heavy, and if carried on in such a manner, as not to amount to subsidizing idlers and shirkers, would require practices and inquisitorial methods which would create immense dis- satisfaction, and probably be impossible under our form of govern- ment where the recipients are voters and have political power, which would be ceaselessly exerted in their own favor. Extreme individualists take exception to the compulsory features which are necessary to make a success of any branch of welfare insur- ance, but above all, are necessary in unemployment insurance. It is absolutely useless to expect that any form of unemployment insurance will be taken advantage of or benefit a large part of the classes most needing it, unless it is made compulsory in character. 108 Dr. S. S. Huebner, professor of Insurance and Commerce in the University of Pennsylvania, and one of the leading authorities on insur- ance in the United States at the present time, in a recent address states that insurance protection for wage earners can not be left to voluntary action either by commercial companies or by the government. The present voluntary state life insurance plans of Massachusetts and Wisconsin, although sound in principle and safe financially and carried on at cost, have made practically no headway. The reasons, for compulsory welfare insurance are the same as those for compulsory education, compulsory sanitary measures, compulsory food inspection and compulsory fire precautions, and are no more an unwarranted interference with the liberty of a citizen than are these and other com- pulsions to which every good citizen willingly submits because they are for the benefit of the whole community, including himself. As the density of population and complexity of civilization increases, certain limitations of liberty of action become absolutdy necessary under even the freest and most democratic form of govern- ment that can be devised. Under even the most- attractive and secure plan of voluntary unemployment insurance, and also of other branches of welfare insurance, that could be devised, there would be a large proportion of thoughtless spendthrifts who would fail to take advan- tage of it to make provision for themselves, or their families. There should be no reluctance for the state to apply compulsion to those so wanting in foresight and sense of piarental responsibility as not to make provision for themselves and families, and such a course would not, I believe, offend the strong individualistic characteristics of the people of the United States when once the true purpose and immense advantages of welfare insurance are understood by them. Against these and possibly other disadvantages of unemployment insurance there are many benefits which, I believe, under a properly planned and safeguarded system, far outweigh the disadvantages. The first and greatest of these is, that it prevents undeserved suffering and destitution. There is nothing which should more strongly engage our sympathies than the spectacle of a man who is able and honestly willing to work, to get the means to support himself and his family, but who is not able to find such work. There is no situation which causes more undeserved, helpless suffering. A system of unemploy- ment insurance, even though accompanied by difficulties which can prevent or even measurably mitigate this misery, is worthy of careftd trial. Another benefit is that unemployment insurance by fumishii^ support, when none is otherwise available, will preserve the physical health and the moral character of the worker. Gk)od physical health and efficiency can only be maintained by a regular and adequate supply of food, clothing and proper shelter. Men and their families must have something to eat every day ; they must have clothes to wear ; they must have shelter and warmth, and if unable to gain these through their own exertion, some will be driven to crime; others will become the unwilling recipients of charity. Charity in the proper cases, and occasionally, is perhaps a blessing both to the giver and to the receiver, 109 but if long continued, as it would have to be to support all the unem- ployed under modem industrial conditions, would become an insup- portable burden to givers, and as I have already maintained, a source of degradation and pauperization to the recipient. Human nature be- ing what it is, it is unfortunately true that there is a certain pro- portion of men and women, who when they find that charitable relief will be always forthcoming, and become accustomed to receive the same, entirely lose the motive to work and practically cease to work, depending on public or private charity. This discreditable side of human nature long ago attracted the attention of wise men. The author of the book of Ecclesiastes wrote : All the labor of a man is tor his mouth.^ And in Proverbs it is said: He that laboreth, labor§th for himself; for his mouth cr^veth it of him.' The hunger motive is the only one that will drive a great many men to work, and if this is eliminated by undiscriminating charity, such men will cease to work at all, and become able-bodied unemploy- ables. Fortunately, as civilization and education advance, a constantly increasing proportion of mankind become amenable to other and higher motives than hunger, but there is still, and will be for a long time, those who will, whenever possible, gain a living by begging or stealing, instead of working, even when abundant work is offered. For this class our scorn and contempt can hardly be too great, and all social plans should take into account this class, and include measures which will compel them to work to support their useless existence instead of allowing them to longer beg or steal, much less furnish them with a pension through unemployment or other welfare insurance paid for by forced contributions from the labor of willing workers. The effect of unemployment insurance money received by the worker is entirely different from charitable relief. Because he has contributed directly or indirectly to create the fund from which he is paid, there is no loss of self-respect. Another benefit of unemployment insurance is that it will niitigate industrial crises by maintaining the consuming power of the worker. May I be permitted to say in passing, that I believe that the Federal reserve currency plan now in force has already proven, and will prove in the future, to be an exceedingly important factor in preventing, or at least diminishing, commercial crises, commonly called "hard times." Owing to their immensely greater numbers, the working classes con- sume by far the greater part of the products of all the industries, and when this consuming capacity is diminished by the unemployment of any considerable part of the laboring classes, by an industrial crisis, such crisis is thereby aggravated. If only purchasing* power for the necessaries of life, such as food and fuel, were maintained, it would go a long way to lessen all industrial crises, although, of course, we all recognize that there are many other contributory factors which must be eliminated before their recurrence can be completely prevented. 1 Bcclesiastes, 6 :7 'Proverbs, 16:26. 110 Unemployment insurance would also operate as a direct pre- ventive of unemployment, because it would be a direct financial inducement to the employer to furnish regular work. In the English unemployment insurance system there is provision made for a marked reduction of the amount of contribution required from the employer if he furnishes regular employment to his workmen throughout the year, and this reward should be a part of every unemployment insur- ance system. The preventive effect of unemployment insurance will be comparable to that in favor of accident prevention, caused by work- men's compensation insurance. When we come to consider whether we should choose the volun- tary form, or the compulsory form, of unemployment insurance in the United States, we find that practically nothing has been done in unem- ployment insurance by voluntary methods, excepting through the labor unions. This is a very important and beneficial branch of their work, but it, of course, is impossible for them to aid those outside their mem- bership, and this membership is only a small per cent of all workers. So far as I know there is no hope in any quarter that, outside of labor unions, unemployment insurance would or could be made successful on the voluntary plan. The only alternative is compulsory unemploy- ment insurance. If this is adopted, it must be carried on by the state or United States, for two reasons. First, in order to avoid the excessive and unreasonable expense of all insurance by commercial methods, and in the second place, because the only hope of making unemployment insurance a success is, as heretofore explained, by having it carried on as the integral part of a Nation-wide system of labor exchanges or agencies.^ As the result of investigation into the subject of fire insurance which I began in 1914, I have arrived at the conclusion as stated in my report on that subject, that on account of the excessive expense incident to the present method of conducting the fire insurance busi- ness, and particularly owing to the existence of a nation-wide fire insurance combine, or trust, of the most oppressive kind, which con- trols practically all of the fire insurance business of the United States and enforces exorbitant rates everywhere, the fire insurance business should be conducted by the different states or by the United States. The fire insurance combine is able to do this, because under modem commercial and industrial conditions where business is largely done on credit, fire insurance is compulsory; practically as much so as if required by statute. This fact enables the trust to "enforce its exac- tions. The same thing would happen if unemployment insurance was made compulsory, but conducted by commercial interests, and the same lAs chairman of the Social Insurance Committee of the National Convention of Insurance Commissioners I have been carrying on an investigation into the entire subject of welfare and social insurance and I have in preparation an exten- sive report on the subject. This has not yet been published but extensive extracts from it have been printed as an appendix to my testimony given on April 6 1916 before the Committee on Labor of the House of RepresentaUves in relation 'to the joint resolution to create a commission to study social insurance and unemploy- ment. (Hearing before the Committee on Labor, House of Representatives Sixty- fourth Congress, First Session, on H. J. Res. 159, April 6 and 11 1916 ) ' Until the printed supply of the report of the hearing in exhausted conies of it can be obtained by those desiring a full and detailed discussion of the subject bv applying to your congressman. •■ ' Ill reasons require that unemployment insurance should be carried on by the state or United States as a part of the general system of welfare insurance. I believe there would be little hope of successful unemploy- ment insurance unless it was carried on by the United States. Of course, there will be strenuous objections from the financial and insur- ance interests to this being done as well as to any other form of state insurance, but these objections are entirely selfish in their origin and entitled to little consideration from those who have the welfare of the nation and its workers really at heart. The argument is the same as that used 1900 years ago by the idol makers against the great Apostle Paul in the riot which they stirred up when he preached against idolatry in Ephesus. "Sirs," cried their leader, Demetrius, the silversmith, as the climax of his harangue, "ye know .by this craft we have our wealth."^ The danger to their source of easy wealth is at the bottom of all the outcry of the insurance interests against any form of state insurance. A typical example of these miserably selfish appeals appears in a recent issue of one of the most widely circulated insurance periodicals in the form of an editorial on social insurance designed to arouse all insurance interests against it, in the course of which the writer says: Doubtless some agents may find employment as state inspectors and sleuths, but Othello's occupation ■will be gone for the great majority. For these reasons every insurance mem in every branch is vitally concerned to oppose the "social" propaganda at every step. For his own safety he should consider himself in the advanced trenches whenever sta^te insurance is pro- posed in any branch. The strongest lever exerted for any of the "social" branches is that it will "eliminate expense." Expense can only be elimi- nated in one way. That is by taking the work required to be done away from those now engaged in doing it, and throwing it compulsorlly on every citizen.* In any plan of unemployment insurance, particular attention should be given to prevention of fraud and imposition, and also to prevent the steady workers from being taxed to support the idle and thriftless. This can be effectually accomplished by proper provisions and careful administration. I am certain that by careful study aided by experience, a plan of unemployment insurance can be worked out which will be just and beneficial to both employers and employees, and of immense advantage to the community in general. This, together with other branches of welfare insurance, I believe, is the most important group of questions before the people of the United States to-day. It contains more promise of increasing their welfare and diminishing their misery than any other movement I know of. I am indeed pleased to learn from the interest which has been manifested in your discussions here to-d»y on these subjects, that your academy is taking the lead in the movement for social justice by earnestly taking up the subject of welfare insur- ance, which I regard as the most important means of aiding in this great work. I am greatly honored in having been invited to address »Acts, 19:26. 'Insurance Field (Life Edition), May 12, 1916, p. 3. 112 you concerning it and hope what I have been able to say, in the shcwt time allotted to me, may cause you all to study and investigate it still farther. Your great profession has already done untold good to humanity by mitigating suffering and preventing disease, and it has the opportunity of further serving mankind by assisting in making welfare insurance a beneficent reality. 113 JOINT STOCK COMPANY HEALTH INSURANCE. Address Before the Conference on Social Insurance, December 5 to 9, 1916, Washington, D. C. Called by the International Association of Industrial Accident Boards and Commissions. Health insurance has already been carefully explained at this meeting and its usefulness. and necessity under present social, industrial and economic conditions fully elucidated. Consequently I will not occupy your time with general definitions, but will pass at once to my specific topic. The most important practical problem in relation to a system of health insurance, is what plan shall be adopted to accomplish, make stable and serviceahle its purposes. To me has been assigned consid- eration of those existing agencies of health insurance, conducted for corporate profit. There are no Lloyds or intersurers engaged in the business of health insurance. To present fully joint stock company health insurance, I believe it advisable to briefly consider its origin and development. In earlier ages, the emergencies and misfortunes resulting from sickness were dealt with, so far as they were relieved at all, by neighborly assistance and charity. These ancient methods of sickness relief have continued in use to the present time, to a greater extent than in relation to other kinds of misfortune. The earliest examples of the relief of sickness, by what we now call insurance methods, were by the primitive mutual organizations called guilds, which flourished in Europe during the middle ages. One of the chief objects of these, was the mutual relief of the misfortune befalling members, and among these misfortunes, sickness was the most frequent. With the decline of the guilds, their insurance feature and other functions were assumed by other mutual organizations, approach- ing in form those still existing. In Germany they were chiefly trade unions. In England they were usually friendly societies, and in the United States, fraternals. The history of these has been ably treated at this meeting by other speakers, and I only mention them because of their association with the origin of corporate health insurance. The same factors which caused joint stock fire insurance to rapidly develop and to partially replace fire mutuals, also operated in relation to health insurance, but the expansion of joint stock health insurance has been much less, than that of joint stock fire insurance, for many reasons. In the United States, joint stock company health insurance was first undertaken in 1847 by the Health Insurance Company of Fhila- — 8 P S 114 delphia. A similar company was organized in New Jersey and several in Massachusetts about the same time. These companies soon failed, on account of the crudeness of the plan upon which they were founded and operated. They also suffered from an unfavorable risk selection, so that their. losses soon became excessive. The fact of the increase of the frequency of sickness with increasing age had also not been taken into account. Beginning about 1860, some of the life insurance companies wrote some health insurance business in a small way. About 1894, a rider attached to accident policies, covering eight epidemic diseases, came into use and from this, sickness insurance, as it is now carried on, gradually developed, so that eventually separate policies were issued without any accident feature, and covered practically every kind of sickness. The conducting of health insurance by stock companies on the industrial plan, with the collection of premiums weekly or monthly, did not begin until 1891. The policies were at first combination acci- dent and health insurance, and they are still in a great measure issued on this plan. Industrial health insurance rapidly became popular and there are at present a large number of stock companies in the United States engaged in this business, besides mutuals and fraternal associa- tions. Competition soon became very keen, taking chiefly the form of a scramble for agents, with all of the evils attending the practice of "twisting." A combination was consequently entered into in 1901, called the "Detroit Conference," taking its name from the city where it first met. This "conference" corrected some of the evils connected with "twisting," but also resulted, as in the case of fire companies, in a "gentlemen's agreement" concerning rates. Another evil which be- came very pronounced in the operation of these companies was their unfair practices in claim settlements. In order to secure members, policies apparently very liberal were issued, but which contained nu- merous masked technicalities. By a strict construction of these de- feasance clauses, the companies succeeded in driving many hard bar- gains. These practices of the casualty companies became so oppressive, that the matter was considered by the National Convention of Insur- ance Commissioners in 1911, and measures taken which have resulted in the elimination of such practices by all legitimate companies. The activities of the National Convention of Insurance Commissioners also resulted in the preparation and adoption of the so-called "standard provision casualty policy," in a number of states. It is now in force in Illinois, having been passed during the 1915 session of the Legis- lature. In early industrial health insurance a flat rate of $1 a month, or a weekly rate of 25 cents was collected. Later the problem of the classi- fication of risks was taken up and there are now in use a number of classes, with premium rates graded according to the hazard, which con- stitute a nearer approximation to justice, but the plan is still far from perfection. With this brief treatment, I pass to the question with which we are most immediately concerned : The merits and deme'rifs of- joint - 115 stock health insurance. There is usually an implication that the speaker assigned to treat a particular method of effectuating a branch of insurance, will bring out all the good there is in such method. I am not unmindful of this custom, but must confess that I am not com- mending unreservedly joint stock health insurance. So far as I can see, it has but one important advantage, which is, that it excels other kinds of health insurance in financial soundness. Since strict super- vision by state insurance departments has become the universal rule, there has been a great improvement in the financial soundness of all insurance organizations, including joint stock casualty companies. Be- cause the various insurance departments have had authority to more strictly supervise the joint stock corporations, than the mutuals, the former, no doubt, excel as to reliability; although, I am not prepared to admit that the joint stock plan is in reality more stable and service- able than a prudently managed and carefully supervised mutual associa- tion. Another general advantage, is that the joint stock companies em- ploy an extensive agency force and by this means write an immense volume of insurance, bringing protection to great numbers. If we admit the position taken by joint stock companies, that any reliable sickness insurance, regardless of acquisition expense, is a great blessing and privilege to the insuring public, then we must admit the justification of an agency force, although the expense of such force is also the greatest disadvantage of joint stock company insurance, be- cause it prevents approximately one-half of the premium paid from being returned as benefits to policyholders. As in the case of all other branches of stock company insurance, the chief cause of the excessive expense is that the business is acquired solely through agents. For the payment of the agent's commission, and in the industrial plan, the compensation of weekly or monthly col- lectors, a heavy pelrcentage of the premiums is absorbed immediately. In addition, there is a heavy expense for the supervisors, field men and others, necessary to keep the agency system in operation, as well as the expenses of general management and the payment of dividends to stockholders. The results of the total health and accident insurance business in the United States for the past 20 years (the commercial and industrial business not being segregated, however,) are shown in the following tables taken from the Spectator Year Book for 1916 (pp. A-164 and A-165) : ACCIDENT. Ratio.loases Premiums Losses paid to Date and class of business. received. paid. premiums received. 1915 $36,977,988 $17,197,415 46.5- illl 35,509,557 16,105,506 45.4 igii 34,522,481 15,581,234 45.1 ] qi I 29,792,473 13,408,552 45.0 1911 ;;;!'.!;;;!!!;!!!!!'. '..i 27,351,626 11,837,347 43.2 Totals (5 years) : $164,154,125 $74,130,054 45.2 Totals (1906 to 1910) 99 549 393 41,206,701 41.3. ?otiis a9oi lo 1905) :::::: tlill-in VAllill tit Totals (1896 to 1900) 36,444,014 16.156,048 ^^-S Totals (20 years) $365,720,268 $159,478,260 43.6 116 HEALTH. Katjo losses Premiums Losses paid. tB< Date and class of business. received. paid. premiums recei'ved'. 1915 $7,891,030 $3,705,713 W.9 1914 7.200,367 3,342,553 46.4 1913 6,928,735 3,256,227 47.0 1912 6,339,406 3,126.160 45.3 1911 7.101,666 3,314,301 46.6 Totals (5 years) $35,461,204 $16,744,954 47.2 Totals (1906 to 1910) 23,848,719 9,607,381 4«.2 Totals (1901 to 1905) 7,157,396 2,903,787 4a. 5 Totals (15 years) $66,467,319^ $29,256,122 44.0 These tables show that in the United States the highest proportion of the premiums collected which has ever been returned to policy- holders as benefits in accident insurance, was 46.5 per cent for the year 1915, and that the average for the past 20 years has been 43.6 per cent. In health insurance, the highest proportion which has been returned? to policyholders was 49.3 per cent in 1913, while the average for the past 15 years has only been 44 percent. These results show even a smaller proportionate return in benefits than in fire insurance, in which the premium rates charged are universally conceded to be oppressive and extortionate, chiefly by reason of being controlled by a combination or monopoly covering the entire United States. A special investigation which I recently conducted in connection with my study of welfare insurance in general showed that the amount returned to the policyholders is much less in "industrial" life insurance than in "oridnary" life insurance. With this in mind, I concluded that it would be very desirable to compare the results in "industrial" health insurance where the dues are paid weekly or monthly as they are in industrial life insurance, with the results of "ordinary" or "commer- cial" health insurance, where the dues are paid quarterly, semiannually or annually as in ordinary life insurance, and proceeded to collect tins information. By an oversight in the heading of the question sent to the com- panies for obtaining the necessary figures to make this comparison, they were asked- to give this information of their accident and health business combined, instead of separately as was intended. Neverthe- less the results are instructive. Owing to the short time that was available for collecting this information, replies were not obtained from quite all of the companies engaged in the health and accident Lnsurance business, but they were received from a great majority, and it is b^ly improbable that the lacking figures would materially change the loss ratios. The combined figures show that the loss ratio in "ordinary" health and accident business for the past four years has been as fol- lows: 1912 1913 1914 1915 Average. 49.46 49.38 46.71 50.89 49.12 And the loss ratios in the "industrial" health and accident business . has been as follows, for the same years : 1912 1913 1914 1915 Average 45.36 46.82 46.45 43.06 45 40 117 Translating this into cost, for a dollar of insurance received by beneficiaries, we have $1 of "ordinary" or "commercial" health and accident benefits received by assureds cost $3.04 in premiums and $1 af "industrial" health and accident benefits received by assureds cost $8.20 in premiums. As I have heretofore frequently declared, the extortion practiced by reason of the monopolistic, cumbersome and excessively expensive systems of insurance, is one of the greatest economic wrongs of our day. If there are degrees in such wrongs, then those of health insur- ance are the worst of all. In fire insurance, the insurer is a property owner; even in life insurance, the beneficiaries presumably have life and health left to them after the breadwinner is gone. In sickness in- surance, the assured by self-denial, attempts to accumulate funds to care for himself and £amily when disease has disabled him. But in order to accomplish this purpose, he must pay in premiums more than twice the amount returned in benefits. Without imputing any personal shortcomings in this respect to those engaged in the business of cor- porate health insurance, I can not refrain from characterizing^ a system which consumes more than half of the premiums paid, in expenses and profits, as not only entirely indefensible, from the economic standpoint, but as grievously wrong morally, and demanding immediate reforma- tion. Joint stock health insurers attempt to excuse their enormous acquisition cost by comparison with fire insurance, which discloses that thqir cost is but littje higher than that of fire. I have made during my term of ofike, a careful investigation of fire insurance conditions and rates ia Illinois and in the United States. In my fire report for 1915 I published some o£ the results of this investigation, which clearly show that if the business of fire insurance was conducted in a similar way to the business of banking, without agents, the interest earnings upon the accumulated premiums, paid in advance, would meet all legitimate operaiing expenses,, so that the total amount of premiums would be available for the payment of losses. This would mean that the present fixe rates would be reduced at least one-half. Similar results would accrue in health insurance. Interest on the premiums and reserves would be more thaa sufficient to pay operating expenses, with the pos- sible exception of industrial health insurance, where because the dues are paid weekly, there would be less interest earnings. In. such a health insurance plan, the person desiring to be insured would apply at the; insurance office,, just as a. depositor calls at the bank with, his deposit. Consequently, the entire acquisition expense, chiefly agents' commissions, would he eliminated. I recognize, however, that under present conditions, where the insuring public have become accus- tomed to await solicitalion by agents, a joint stock company could not succeed without the existence of an agency force. Health insurance will not become general until some form of compulsion is applied. But with a compulsory law requiring every man to carry a certain minimum amount of health insurance, its benefits could be made universal at much less than one-half of its present cost, thus bringing more than double return in benefits. It would, however. 118 be wholly improper to enact such a compulsory law, unless the state at the same time provided a system, by which the insurance could be obtained at actual cost. Whether or not a state health insurance instir tution is the best plan, considered from every point of view, depends upon the ability and willingness of private corporations to provide equal benefits and render equal service at the same costs. It is possible that if a state welfare insurance institution were established, of which health insurance would be one of the principal branches, it would be feasible and probably advantageous, to allow indi- viduals to have their choice, as to whether they would carry the com- pulsory minimum amount of health insurance in the state institution, or in private corporations which were strictly supervised and carefully safeguarded as to management and soundness. The existence of com- petition from private companies would have a tendency to secure efficient service and capable management of the state institution and compel its operation at the lowest possible cost. In both Germany and England, where health and other welfare insurance, up to a certain minimum for each person, must be in national institutions, much use is made, for the purpose of local administration, of associations covering limited areas, managed by the assured, or by the assured and their employers, where employers pay part of the dues. Similar provisions form a part of the proposed laws which have been urged before the legislatures of several of the states, under auspices of the American Association for Labor Legislation, and I believe such provisions are very desirable. It would be advisable, in any compulsory health insurance system, to allow any person, in addition to the option of making provision for himself and family against the economic effects of sickness, by carrying insurance in a state institution, a joint stock company, an approved mutual or fraternal, to substitute for health insurance, such security as might be approved by a welfare insurance commission. I regard the allowance of all these options as an extremely desir- able and even necessary provision in a system of compulsory health or other welfare insurance. They would be pacifying concessions to the strong individualistic instincts of a considerable and combative por- tion of our people, and would also checkmate those who might attempt to play upon such individualistic traits to defeat compulsory health in- surance. No fair-minded man will contend that provision against the economic results of sickness should not be made by everyone, and if he is allowed a reasonable choice between effective methods he can not help recognizing the justice of a law which recjuires such protection. In conclusion, I feel fully warranted in stating that joint stock company health insurance is generally reliable and at present performs a useful function, but that its excessive cost places it beyond the reach of the great majority of the people of the United States. And, that measures should be taken as soon as possible, to create a system of health insurance coming within the reach of all and capable of being made universal by compulsion. 119 FEDERAL COMMISSION TO STUDY SOCIAL INSURANCE AND UNEMPLOYMENT. [Hearing on April 6 to 11, 1916, before the Committee on Labor of the United States House of Representatives, Sixty-fourth Congress, First Session, upon House Joint Resolution No. 159, providing for the appointment of a commission to prepare and recommend a plan for the establishment of a National Insurance Fund for social insurance and for the mitigation of the evil of unemployment] Testimony of Mr. Rufus M. Potts, Insurance Superintendent of the State of Illinois, and Chairman of the Committee of the National Convention of Insurance Commissioners to Investigate Social Insurance, Springfield, Illinois. Mr. Keating. Give your name, address, and occupation to the stenographer. Mr. Potts. Rufus M. Potts ; I am insurance superintendent of the State of Illinois, chairman of the committee of the National Conven- tioii of Insurance Commissioners appointed in December last to investi- gate the subject of social insurance. I reside at Springfield, 111. As 'chairman of that committee I started several employees to work to determine the exact status of the working people and the masses in general, in the United States, and of the European countries that have social insurance, and of countries that do not have social insur- ance. We aissembled every publication dealing with this question that could be reasonably obtained, printed in the English language, and then I had one man who reads, writes, and translates French and German to investigate the publications of those countries dealing with this question. We have assembled all information obtained in the various publications, and now have my report ready to present to the commis- sioners on the 17th of this month at its meeting in St. Louis. I have the preliminary report with me, but at the present time it stands as the report of myself and not of the members of the committee, as they have not had an opportunity to inspect same, and I do not wish to file it until I have their approval arid consent that it be filed. In the study of this question, I am convinced that it is the most important social and economic question before the world to-day. It is the only medium of effectuating social justice. It is "the system whereby individual wage earners are able to capitalize their earning capacity for themselves and with the cooperation of the Government for both the Government and themselves, instead of it being capitalized, used, consumed, and destroyed by their employers as is done in many cases. It not only provides a method of capitalizing the earning power of industrial workers but applies likewise to all producers, breadwin- ners of moderate means and circumstances. It is serviceable to the laborer in the agricultural districts ; in fact, it is indispensable in every field of endeavor where the producer receives less income than is nee- 120 essary for his proper maintenance and the support of himself and his family or dependents, according to the American standard of living. Therefore it will affect at least 50 per cent of the wage earners of the United States, as more than that number receive less than a sufficient sum to support their families and educate their children in keeping with the American demand for human maintenance, upbuilding, and whole- some living, and accumulate sufficient surplus to provide for accidents, sickness and other emergencies. Mr. SuMNERS. May I interrupt you right there to ask you to explain how taking care of these sick people would increase the ordin- ary earnings of the people who are not getting enough in a state of health to take care of them? Mr. Potts. Beginning with the fundamental principle that our people are our greatest asset and to produce the greatest good to the greatest number should guide all operations, and that human efficiency is the chief basis of all achievements, then when we establish a system that increases human efficiency by overcoming in so 'far as possible sickness and all other things that make them inefficient, we are stand- ardizing human surroundings, raising our chief asset to its highest value and are leading toward social, economic and Governmental altru- ism. The efficiency of our people or lack of efficiency of our people, that is, of the masses, is the greatest and most disturbing problem we have to contend with to-day, and when by a system of social insurance we up-build our greatest asset by giving them opportunity to have human comforts, by making them well, by placing them where whole- some surroundings keep them well, by securing for them sufficient wages so that they may purchase wholesome food, suitable clothing, obtain good housing, we have brought about a most remarkable stand- ardization of the living conditions of our people. This condition we hope will come in the next few years and can only come through the universal adoption of social insurance. When we raise the standard of our individuals, we do likewise of the community, of society as a whole, of our states, and of our Nation. Mr. SuMNERS. I agree with you there, but what I was trying to get at is, how the insurance of a man against sickness is going to meet the situation, when he is not getting enough really when he is well. Mr. Potts. To provide for men when they are sick and to be able to tide them over during the interval of sickness, is a social and eco- nomic question that can be worked out as easily and applied as faith- fully, as is now being done through sickness occurring to persons from occupational diseases under workmen's compensation. The same method and the same procedure should be followed for that purpose There is ho question but what the fact of the recurrence of illness in communities and to individuals is of such uniformity and certainty, as to be utilized as a foundation for establishing a table of rates whereby a proper premium basis can be obtained that will produce a sufficient amount of money to provide for sickness whenever it occurs. That amount of money, as said by Mr. Dawson, will not be equal to the amount earned by the person to whmn it is paid The question of simulation and malingering will not have a disturbing effect, because 121 he only gets enough from the insurance fund to tide him over his ill- ness umI ke^ him out of the abyss of poverty, while if working, he gets enough to keep him within his usual standard of living according to his wagesi. Another feature which will help to prevent simulation is, that sickness insurance is limited to a certain number of weeks in a year, and it is likewise limited in some countries in proportion to the amount paid into that fund or contributed by the producers themselves. The man who is not a producer contributes but little to that fund, and would be gi>le to secure but little from it in case of sickness, and a man attempting "simulation" who is not a producer under the system of social insurance, will become as much of a disgrace as our tramps of to-day or present idle rich, who exist as inexcusable leeches and para- sites on the society of this country. The amount and method of pay- ment in such cases is purely an actuarial problem which actuaries will be able to work out and which will in no sense become burdensome, because the number of weeks is limited and the amount of payment is also graduated and limited. Mr. SuMNERS. What percentage of this insurance ought to be taken care of by the employee, and what percentage by the employer, and what percentage by the Government ? Mr. Potts. That would vary somewhat, depending on the manner in which it is administered and the necessary expense attendant to its effectuation.' Mr. SuMNERS. Take our Government here in the United States. Mr. Potts- In our country the Government itself should provide for the administration of the insurance either by the payment of a suf- ficient per cent of the fund or to administer it as a governmental func- ti^Hi. Mr. SuMNERS. In addition to the administration expense, should the Government make any contribution ? Mr. Potts. If the Government administers the fund itself, which is the only and final solution of this question, I doubt if the Govern- ment should make any further contribution to the fund; but if the fund is administered, as is being done now in various parts of Europe, whereby the Government contributes a small per cent, the employer a reasonable per cent, and the employee also a reasonable per cent, local conditions would govern as to the per cent each should contribute. If the sickness results from occupational diseases, it might necessarily be charged as a part of the industry and the whole amount paid by the employer, just as is done now in Workmen's Compensation in this country, and, in that event, under a proper development of this system of social insurance — ^when it once gets to where it maintains its normal balance, which it will after a reasonable tryout — ^the Government should administer it, the employee should pay possibly 40 per cent and the employer 60 per cent. In case of trade unions having a consider- able number of members, like there are in my State in the miners' union, the estimated payment could be added to the annual wage-scale agreement and cared for as an overhead charge to the cost of produc- tion. Likewise, the employer would add his payments also to his cost 122 of production, and it will extend upward to where the whole of society meets this loss and carries the burden instead of percolating downward, as it does now, whereby it is borne by the wage earners, causing an oppressive condition that is distressing beyond tolerance in the United States. Mr. SuMNERS. Is it better to have the community as the unit? I hope you will pardon me for asking these questions. These other folks are all wise about this matter, but I am trying to find out for myself. Mr. Potts. I am glad to have you ask them, and I will answer them if I can, and if I can not there are others here who will be able to do so. I do not wish to announce a stand on that proposition at this time, because there are so many things entering into it. My judg- ment is, however, that the final solution will be the whole' United States, owing to the fact of the mobility of labor, and that the United States should be the unit in considering this question. Mr. SuMNERS. I am afraid you do not get me. Here is a com- munity. I may not have your viewpoint and you may not have mine, but here is a community, and in that community there are many voca- tions. Mr. Potts. The community. Mr. SuMNERS. The whole community? Mr. Potts. The whole of the community. It is true that many labor unions are able to serve their own members in a very g^reat and advantageous manner by long-established methods of contributions, but that only relieves the members of a specific vocation of certain oppress- ive conditions borne by the whole of society, and does not maintain a normal balance of the burdens on the whole of society, which we are morally compelled to do in this country. Our form of government re- quires that the sharing of burdens and the sharing of profits shall ex- tend to all, but the difficulty is one crowd shares the profits and the other endures the burdens. Mr. SuMNERS. Which is more economical, to have these funds administered by the people who are the beneficiaries or to have them administered by the Government? Mr. Potts. To have them administered by the Government is the only safe and economic way. It may be administered in a reasonably safe and a fairly economical manner through other channels, whereby those who contribute — the State or Government select a certain number, the employer selects a certain number, and the employees select a certain number — each in proportion to their respective con- tributions, and they jointly acting as a commission may administer the funds with reasonable safety, and on account of being close to those who receive the benefits of the fund possibly some advantages may come from such source. Mr. SuMNERS- I do not want detailed answers. I am selfish; I am just trying to get it into my head, and pardon my disposition to shut you off when I get it.' Where there are two people in the com- munity earning different salaries and making different contributions to this fund, in the event those people get sick, on what basis are they paid? 133 Mr. Potts. That would be an actuarial question, to be determined upon an equitable basis. Those who contributed a certain portion should be paid commensurate to the percentage contributed, sharing equitably in the fund. _ Mr. SuMNERS. It is not put on the basis of necessity, but on the basis of contribution ? Mr. Potts. Necessity would make contributions suifificient. I do not mean necessity, but I mean the benefits of this fund in its adminis- tration should be such as would make contributions sufficient to meet necessities. Mr. Summers. You take the fellow that earns $5 and the man who earns $6, he is just as sick as the fellow who makes $6. Mr. Potts. That is true ; but the amount paid to him must depend in some measure upon his producing capacity, and likewise it must be graded somewhat in accordance with the surroundings that cover each class of industry. Mr SuMNERS. But when he is sick it is not merely the dollar he has lost, but the physician that he has got to have and the food. Mr. Potts. Those are combined actuarial and economic questions, and are only wheels within wheels. They do not go to the fundamental principle, but in my judgment equitable plans for all industries, taken as a, part of the entire industry of the country, can soon be worked out. Wherever possible, a greater producing power would contribute, pro- portionately at least, to the fund of a less producing power, whereby it would seek its level somewhere, and the work of society must operate and follow some well established and equitable plan for the protection of the entire masses, rather than various divisions thereof. Mr. London. Before you leave this subject, will you kindly tell us how the commissioners of insurance came to take up the subject of social insurance ? Mr. Potts. Demands for relief for the poverty-stricken people in the United States, who are suffering from a most imperfect, wasteful, and unscientific method of being cared for, have arisen in a number of the states, and being an insurance problem, has been presented to the varioys insurance commissioners, and it is the policy of the National Convention of Insurance Commissioners to deal with insurance prob- lems, in so far as possible through committees, and the agitation in the respective states caused the commissioners to appoint a special commit- tee for the .purpose of investigating all of these social insurance ques- tions, and such allied questions as are interwoven therewith, and report the result of their investigation to the whole body. Mr. London. And you are chairman of that committee? Mr. Potts. I am the chairman of that committee. Mr. Browne. I would like to ask one question. Mr. Potts. Certainly. Mr. Browne. We have state insurance in Wisconsin, the state that I represent. Mr. Potts. Yes, sir; you have been administering a state life fund, and also a fire-insurance fund for state property. Mr. Browne. We sell insurance at considerably less than the reg- ular old-line life insurance company. 124: Mr. Potts. Yes, sir. Mr. Browne. But we have found this difficulty that I do not know but what would arise under any social insurance : We hai^e to coBjpetc with the old-line and the assessment life insurance companies, llrcy have agents in the field that are going about from place to place solicit- ing insurance. Mr. Potts. Yes, sir. Mr. Browne. Now, the State does not do that. It has that insur- ance law. The people can apply to the State, and it sends out its blanks to the county clerks and county officers around in eadh of the 71 counties that -we have in the State, but we are not writing the insur- ance that we expected to, because of the competition of mese ageirts that are soliciting insurance and misrepresenting the Stat-e insurance policies. Mr. Smith. Do they write mutual or stock insurance? Mr. Potts. No, sir. Mr. Browne. It is on the mutual plan, I think. Mr. Potts. You have two forms of state insurance in Wisconsin. One is the administering of a life fund, and the other is the insurance of the State's property by a fire fund. Mr. Browne. Yes, sir. Mr. Potts. The administering of a life fund in the State of Wis- consin has been very ably apd carefully established, and is a fund that will itself finally succeed, but it has been abandoned by the present State officials to die. Under the supervision of Insurance Commis- sioner Ekern, of Wisconsin, that fund was greatly stimulated. The new commissioner appears to be not in harmomy with the life fund plan, and it is existing simply without any support whatever. Now, this fund can not compete with the ordinary system of insurance for this reason: Insurance institutions have solicitors, and insurance salesmanship is what brings insurance, and the people have not yet be- come convinced of the necessity of universal insurance or general in- surance sufficiently to voluntarily support that fund. The way to make a state fund successful would be to make the insurance compulsory, making the insurance compulsory and leaving it optional with the in- surer as to the institution in which the insurance is to be taken ; then under such conditions the state fund will outstride all others in a very short period of time, with permanent success certain. In Wisconsin it is temporarily impossible for this fund to succeed, because nobody wants it, nobody supports it, everybody is hoping that it will die; that is, the present political power reflects this attitude — with all due respect to the able men who are in — ^but they were elected with this point in view, and the effort of the present administration seems to want to undo the "Wisconsin idea," as they call it up there, which was established by the previous administration, and the "Wis- consin idea" has been strongly combated by the reactionaries who are in charge at the present. Mr. Browne. I was in the legislature when the fund was estab- lished, and I am in favor of the "Wisconsin idea" ; but while that in- surance was a sort of disappointment in its growth because of the com- 125 petition of the other companies, and now of course under another administration, with the state administration against it, we do not look for i± to succeed. Mr. London. And then it dealt only with life insurance? Mr. Potts. Only with the administration of a life fund. It does not insure but administers an insurance fund, but there is" no way of getting anybody in, because the insuring public do not take it upon themi^ves to buy insurance over the counter, while there is an army of agents after every fellow who is an insurable risk, and every argu- ment is .presented and excuse urged why he should give him the in- surance and avoid the state fund. Mr. Browne. My point was, would not this insurance of the Gov- ernment have to compete with all of these agents, like the Metropolitan Life Insurance Co., that is going around and insuring people and get- ting their 5-cent pieces, etc. ? Mr. Potts. That is true, but the insurance will go to a National or State fund, for the reason that it is compulsory, and the Government would be able to administer it at a much less expense and is a much safer institution, and grant insurance upon a much more advantageous basis than is possible by any voluntary insurance institution. There- fore, the compulsion to take out adequate insurance will drive the man who makes it to the best possible bargain counter and that will always be his government or state. Mr. Browne. Do you think it would be constitutional to have it compulsory ? Mr. Potts. I do. A compulsory social insurance act comes clearly withrn the "promote the general welfare" provisions of the Federal Constitution. The wording of the preamble of the Constitution places a duty upon Congress to "promote the general welfare" of our people, and investigation shows that social insurance is the most serviceable medium of carrying out this duty. Mr. London. You have been practicing law for 25 years, as I understand it ? Mr. Potts. Yes, sir; and I wish I had continued at it instead of becoming an insurance commissioner. There is only one difficulty that occurs in any of these systems of insurance that could, in my judgment, be urged against a system of social insurance, and that is equally applicable to Workmen's Compen- sation laws, which has been upheld by the courts of several of the states; but the exact point seems not to have reached the Supreme Court of the United States but has reached the Supreme Court of the State of Washington, and there the law was sustained. There are two of the amendments to our Constitution, the fifth and the fourteenth, I believe, which contain provisions prohibiting the taking of property without due process of law, and when an employer is compelled to insure his employee against loss resulting from negli- gence exclusively upon the part of the employee, then the question is, when you are compelling him to pay for something for which there is no legal obligation whatever upon his part, is the taking of property without due process of law. When that feature of it is eliminated, or 136 finally passed upon by the Supreme Court, then all questions involved vs^ill have been disposed of. In any event a law could be so drawn to leave a legal option to all concerned, but provide such severe penalties as is now done in Workmen's Compensation laws as to make the law in fact compulsory. Mr. BfeowNE. New York decided that the law was unconstitu- tional. Mr. Potts. The first law they did, but they afterward reenacted a law in conformity with the Constitution, leaving out those portions of the original act which the court decided had contravened their State constitution. Mr. Dawson. And it has been held constitutional by the New York courts, and is now before the Supreme Court of the United States. Mr. Keating. Permit the Chair to suggest that under our pro- cedure these questions are supposed to be asked after the witness has concluded his statement. They were permitted in the case of Mr. Sumners because he had to leave and go to another committee meeting, but I think it would be well to permit the witness to conclude his formal statement, and if members wish to ask questions they should make a note of them and ask them after the formal statement of the witness has been completed. Mr. Potts. Continuing further on the point in relation to the con- stitutionality of this law — of course the Supreme Court* of the United States must decide the constitutionality of any social insurance act and our opinions are the "lawyers guess" at this time — ^but as hereto- fore stated, under the preamble of our Constitution which creates a duty of promoting general welfare, and under section 8 of Article I, in outlining the powers of Congress the general welfare provision is again included which forcibly indicates that the Central Government should do all things which are necessary to promote the general wel- fare of our people and of the United States. Hence, a law providing for a national system of social insurance based upon an investigation made by this committee, which investigation determines the necessity for such a law, and the committee report become the basis of the law, such a law could never be held unconstitutional upon fundamental rea- sons. It is the public policy that remedial legislation shall be based upon some public necessity, and that the piiblic necessity for such leg- islation should be determined by a committee of the legislative, body. For instance, I recall one case where one of the reasons assigned for holding the 2-cent passenger tariff law illegal was that the law wa= passed by the legislature without having made any investigation to de- termine whether or not a 3-cent passenger fare was reasonable. In other states investigations were made by proper authorities and the fact determined that the 2-cent passenger fare was sufficient and a reason- able compensation and made the basis of a law which was upheld. If this legislative committee carries out the resolution, preferably by the comriiittee itself or subcommittee instead of any commission, and makes a thorough and complete investigation of this subject, and from their investigation finds that a system of social insurance will 127 prbmote the general welfare of the people, and of the United States, then all constitutional objections will vanish, and this committee will have obeyed the constitutional mandates of "promoting public wel- fare," and rendered a public service unequaled in the history of our National Congress. There is another medium whereby national control of social insUr^ ance institutions is possible. I would not want to give it as a legal opinion, nevertheless it is worthy of consideration. While our Federal and State Constitutions are not exactly upon the same footing, one being a grant and the other a limitation of power, yet my point is fre- quently upheld under State constitutions. For example, many things are by statute made a nuisance that clearly does not come within any reasonable definition of the word "nuisance," and the State supreme courts invariably uphold this statutory invasion of constitutional rights by making something a nuisance which clearly is not. Now, then, the Supreme Court of the United States many years ago held insurance was not commerce, and "under a most strained sys- tem of reasoning, recently rendered an opinion again upholding its original decision. But these decisions are based upon the ordinary definition of "insurance" and "commerce." The court having diffi- culty in separating them, in fact, the definitions overlap in many ways. Now, suppose Congress should pass a law defining insurance and desig- nating it as commerce, would not the Supreme Court uphold such a statute, and make insurance subject to congressional regulations as provided by the commerce provision of the Constitution ? Before passing from the consideration of the resolution, I wish to mention that unemployment is given as the prominent feature therein. While unemployment is an important division of social insurance, yet in our investigation we divided the different branches of social insur- ance by their availability to obtain statistics, and adaptability of admin- istration, placing similar hazards in the same division. In our report we took sickness, accidents, disablement, or invalidity, unemployment, maternity and old age dependency, discussing each separately, and have secured statistics covering the divisions separately. Giving a compre- hensive system of social insurance by its various divisions, believing that some branches may be adopted in some states that might rebel against all in one measure, I am convinced that your committee making the investigation of this subject will find it necessary to likewise divide the subject into various branches, but I do not regard it necessary to change the resolution for that purpose. The United States must compete with every nation for commercial and industrial supremacy on the globe. Our utter inefficiency and lack of general preparedness from every point of view is now appar- ent to every student of national affairs. In the world's crisis of clash- ing nations, where efficiency is the test of endurance, those found most efficient, most enduring, and most patriotic are those having the most extensive and far-reaching systems of social insurance. In a few lines of industry our country is now raging with prosperity. The product of this prosperity may be the cause of a clash that will test our national existence, and it will not be those who are reaping the prosperity that 128 will defend our Nation when the crisis conies, if it does come, but it will be the common people, whom we have for a half century neglected. In our country of great natural resources and generally prosper- ous, one-tenth of our population is in poverty. While statistics differ materially as to the number in actual poverty, owing chiefly to the definition given the word "poverty," yet 10 per cent is a conservative estimate. This condition existing among our people is due to the failure to properly distribute the products of labor, and when labor is capitalijzed for the individual and for the Government, and cooperation between the two is established, then and only then, can we have a dis- tribution of labor whereby those who produce it will receive a commen- surate or at least a reasonable income on the capitalization of their producing power.. By establishing a national system of social insurance we can give to the individual the nationalized life protection, the whole life protec- tion. We begin with maternity insurance, by which a reasonable amount of compensation is provided to insure proper care during ma- ternity, so that the child is ushered into this world under surroundings which give favorable opportunity of living, and only a system of mater- nity insurance can reach the mothers who are now destined to bear the population of our future generations. It is the common people,, where race suicide is unknown, to whom we must turn for a sturdy and pro- lific stock to upbuild and maintain our people and our Nation, and the duty is imperative to care for and look after mother and child, and maternity insurance is the medium through which this may properly be done. There are two methods of providing old-age annuities by payment of small sums in early youth. One is "alienated-capital plan" and the other "reserved-capital plan." At the age of 5 years, under the alien- ated-capital plan, by the parent paying for the benefit of the child $200 to an old-age fund, an annuity of $350 will begin at age 65 and con- tinue until death. The reserved-capital plan pays less, but if the child dies the original amount is returned, while under the alienated-capital plan nothing is returned in case of death of the child. I give this only as an example. Similar payments in one sum or small deposits can be made with commensurate benefits. A young man can easily purchase an old-age annuity for himself and for his wife — to be chosen later — ^by commencing payments early and dispose of the dread of old- age poverty for both before marriage. Under systems of social insurance covering accident, sickness, un- employment, and other hazards affecting the breadwinner during the middle period of life, with maternity and old age disposed of, we then have whole Ufe protection, by the automatic dovetailing of social insur- ance branches. Actuarial science will determine the exact amounts necessary to be paid to produce the desired benefits, and piiblisbed tables will make this information available to all. We now look for a safe and convenient depositary in which to place the fund not only for safe-keeping but for proper administration, and we naturally and wisely turn to our Government or our State institutions that will not make a profit out of the misfortunes of our people, institutions that will coun- 129 tenance no excessive burdens, institutions that protect themselves when they protect their people. Insurance in its final analysis is but a tax. It is added to the cost of production by every producer and middleman, and is ultimately paid by the consumer. It is the distribution of the burden of human misfortunes upon the helpless consumer, and in many lines of insurance the profits are very great, this is especially true with stock fire insur- ance companies, which maintain one of the most formidable trusts in America. It is a fundamental mistake for any institution to reap profits out of a business created by human misfortune, and especially where the profits increase the burdens of misfortune. It is likewise a fundamental mistake for any institution to profit from a tax imposed by law or commercial necessity upon the whole people. It is contrary to the fundamentals of our Government for any tax to be burdensome and oppressive, hence, an iasurance tax which is made burdensome and oppressive by profits, demands corrective legislation. For any insur- ance institutions to profit out of systems of social insurance would be to legalize the crime of oppression and convert beneficent institutions into gainful occupations. Therefore, the necessity for this resolution must be apparent to all. When the European war is over and conservation and salvage of humanity supplant human destruction, then the nations of the world will take rank and be measured by a new standard. The rank and standard will be determined by the nations' attitude toward its wage earners — its common people — its masses. All those traditional things which give a false rank and a false standard to nations must now give way to the establishment of a true national life and higher human betterment. National and industrial efficiency will correspond with the degree of efficiency of the people of each nation, and an efficient people can not exist in nations neglecting its wage earners — its common people — its masses, and social insurance is the one and only method of bringing to these people that efficiency that all success- ful and progressive nations must possess. If our Nation is to maintain a ranking position with the other nations, it must base its eligibility to its assumed rank, on its actual ability to meet all other nations in national, commercial, and industrial contests, and to survive these tests its people must be as efficient as are contesting nations, and our Nation must begin at once to grant our people such opportunities and benefits as will permit them to bring self-standardization and the highest degree of efficiency. Social insurance is objected to by many on account of its name, and it is unfortunately named. The first time you mention "social insurance" to a man who has not studied it, he imagines that it is a socialistic propaganda pure and simple, and while I regret that I have not gone into the theories of socialism sufficiently to tell how 'far I adopt their doctrine or how far I oppose them, and can not say whether any prejudice is justified or not; yet there is a pronounced public prejudice against the socialist, which is urged by the unin-. formed against this question. If the socialists are for social insurance — 9 P S 130 this should for no reason injure its chances of success. It will be found that the real opposition to social insurance comes from greedy corporate interests that will be affected thereby. Again, the word "compulsion" to the minds of many is offensive. To effectuate this insurance adequately, equitably, and permanently, it must be made compulsory. The word "compulsory" is much more offensive than is any compulsory law. The best example of compul- sory social insurance that we have in the United States to-day is compulsory education, which is social insurance in its purest form Compulsion, in fact, more or less guides us in every step we take. When I leave my home I have to obey the traffic laws; my hous«i must be constructed in accordance with the regulations prescribed by a building code ; I can not hunt out of season ; my children must obej compulsory school laws. My home i's inspected under sanitation laws I depend on the food inspector to see that my groceries are whole- some; yet all these things are for my personal good and the good of the whole community. Compulsory laws are not so objectionable as the word "coriipulsion" is of itself. Workmen's Compensation laws are compulsory in some states, and practically compulsory in all other states, and social insurance is just as practicable and necessary as is Workmen's Compensation. We can not now possibly understand how we ever tolerated existing conditions prior to the adoption of Workmen's Compensation, and to those of us who have gone into the study of social insurance there is exactly the same feeling with respect to this question. The division of humanity that is now remaining unprotected, enduring oppression,' poverty and misery makes a continuation of this condition intolerable. The money and effort now spent in attempted charity and through poor laws and almshouses, relief funds, and prisons, from increased crime due to poverty, would be sufficient to maintain a comprehensive system of social insurance and result in a hundredfold of increased efficiency and human and social upbuilding. Before leaving the question of compulsory insurance, I have in mind an example I want to give you. Fire insurance is practically com- pulsory, not as a matter of law, but of commercial necessity. No credit will be extended where fire risk is not insured, and a vast majority of all property is compelled to be insured. Now, then, with a compulsory insurance and no national or state fund, in which pro tection can be obtained, leaves the insuring public at the mercy of the fire insurance monopoly. This fire insurance monopoly is maintained by a large majority of the stock fire insurance companies, making fire insurance rates very oppressive and bringing great profits to the trust companies. Fire insurance premiums to-day are at least twice as high as they would be if insurance was granted by a national or state fund. This insurance monopoly is now staggering the Nation. We are unable to control it and can only bring about a slight abatement _ in a few states where the legislators are not under the monopoly's ' influence. The necessity of this resolution is apparent to all who have come in contact with insurance conditions. The fast approach of state insurance to grant relief to an oppressed insuring public has 131 caused the insurance interests of all lines to create a Nation-wide monopoly to resist every step toward state insurance, invading any branch of the insurance business. The agents of each division of insurance have organized state organizations in every state with an added national organization. In furtherance of the plan, a federation of the agents of all branches has been consummated with an army ol insurance preparedness that will cause this Government to tremble with weakness in its effort to overcome their opposition to state insurance. We seriously need a secretary of insurance — a new Cabinet posi- tion. A national head of this great service is imperative, but such things can only be accomplished through long drawn out congressional fights for proper laws, and then equally long court fights to sustain such remedial legislation. The people of the United States pay annually over $l,500,000,t)00 in insurance premiums. This vast sum is added each year to the great bulk before accumulated. Much of this money is available for use by the great corporate and financial interests that control and direct the money market in the United States. Much of this money goes through channels which are de- structive to the best interests of the United States, and especially to our wage earners and the masses. These things are in direct con- flict with those provisions of our Constitution which require Congress to promote the general welfare of our people and our Nation, and only a government head, such as a Cabinet officer, with broad powers over this industry, can curb the evils incident and attendant to the insurance monopoly. An example of the power of this insurance agency force may be seen from their activity against remedial insur- ance legislation in Illinois during the last session. Illinois has approxi- mately 40,000 insurance agents representing all combined forms of insurance. There were 42 members of the legislature who were licensed insurance agents, and when the bell-wether of the insurance trust announced, atithe beginning of the session, that there would be no reform insurance legislation, his mandate was literally obeyed, and he was backed by the 40,000 members of the insurance agents' federa- tion, which stand as the buffer between the insurance trust and the people. I am not an alarmist, but the statements I have made are based upon personal investigation and experience as the head of the Insur- ance Department of Illinois, the second largest department in the United States. I have not overstated conditions, and these condi- tions must be corrected, and the remedy can more quickly and eflfectively come through national channels. While I have extended a little beyond the tenor of the resolution, yet I feel justified in doing so, as all substantial opposition to social insurance will start from existing insurance institutions and through their many innocently named channels will reach the legislative bodies. A nationalized system of social insurance should be the answer to the activities of this committee. It should come quickly. Relief should be given to the public without waiting for independent action of the several states. Unless this committee acts quickly and some recomn'endation made, 132 and Congress urged to take action before the meeting of the legis- latures of the various states next year, it will be contended by those opposed to social insurance that the Federal Government has this matter in charge, and will demand delay, awaiting the activities of the Government in dealing with this question. I have digressed somewhat, gentlemen, from the method in which I wished to address you, and I have already taken up too much of your time, so much so that I do not care to take up any more, but will be glad to answer any questions that you wish to ask me. Mr. Browne. What writers are authorities along the line that you have been speaking on social insurance? I would like to get them. Mr. Potts. I have in my grip a list of over eighty publications which were read and investigated by our committee. Mr. Browne. If you will just read to the reporter the names of a few of the highest authorities, that will be what I want. Mr. Potts. If the committee wishes, I will leave a list with the committee. Mr. Keating. Just leave it. Mr. Potts. And I also wish to file as a part of my testimony my complete report as soon as the same is given to the national con- vention. ~ Mr. London. When does that convention take place? Mr. Potts. The 17th of this month is the date of the meeting of the convention. Mr. Keating. Without objection leave will be granted to the witness to file his report as a part of his remarks. Mr. Potts. I thank you. Mr. Keating. I would suggest that the witness insert the list of publications at this point in his testimony. He can prepare it and file with the stenographer such list as he may see fit. Mr. Potts. I will do so and it can be given instead of reading oflf any of the names at this time. It might be unfair to many other authoritative publications for me to read just a few. Mr._ Smith. I wish to ask one question. The trust that you refer to as being an insurance trust. You had reference to fire insurance? Mr. Potts. The National Board of Fire Underwriters is the con- trolling body of the Fire Insurance Trust. This trust is the most forniidable of any in the United States to-day. It consists of at least 100 innocently named subsidiary institutions and committees, through which the mandates and legislative policies are enforced throughout the entire list of the states. The Nationar Board is the controlling board and deals with an iron hand with public-policy questions. All branches of insurance have their defensive and offensive organiza- tions, controlled by well-equipped and well-schooled committees that throw out the lifehne to each other at the first cry of alarm ; in fact, they pursue the most feeble echo, and are ever ready to assist each other in all legislative battles. But the fire insurance monopoly is the most offensive and the most defiant to all control and regulation and pursues the most unscrupulous methods in resisting any atteVnpt to bring about legislative control. ^ J f l^/ll 133 The new method of all insurance branches and institutions in both offensive and defensive work is through the federation of agents, and their work has been quite effective and fruitful. Increase the agency force is their perpetual effort, and to make agents out of officials is quite' common. For example, it is their policy to appoint a city clerk an agent. It is not necessary for him to write any busi- ness, but he is an insurance agent, and the general agent will call and secure for him four or five policies so as to keep him an agent. Every justice of the peace in our country is solicited to become an insurance agent, and the general agent writes a few policies and gives them to him. It is the great army of agents that are closest to the people, who will arise in unison and resist just the things that you are trying to do by this resolution, and Congress will discover great resistance in its efforts to ^solve this question unless it acts firmly and quickly. Mr. Smith. Are the terms of this bill broad enough to include fire insurance ? Mr. Potts. No, sir ; I only mentioned fire insurance from the fact that it. is compulsory, although only as a matter of commercial neces- sity and not as a matter of law, and a monopoly will exist following compulsory insurance unless a State or National fund is at the same time established. Mr. Smith. What is the purpose of that combination or organiza- tion — to maintain prices? Mr. Potts. To fix the premium rates and to compel obedience to the rates, and to penalize the agent who fails to follow the rate, and if he does not comply with the rates, all of the other combine com- panies withdraw from the risk; then the insured can not obtain insurance. It is also true when states pass remedial legislation, the com- bine companies withdraw therefrom and citizens are left without insurance. This is to penalize anv state attempting to control them. This has happened in Texas, Kentucky, Missouri, Kansas, and South Carolina. Mr. Smith. Why does it not come within the proviso of the Sher- man antitrust law then? v Mr. Potts. It has been presented to the Federal Government and an investigation is now being made of the Fire Insurance Trust, but like many other proceedings in the Department of Justice, they move slowly. Mr. Smith. That is being inquired into? Mr. Potts. Yes, that is being inquired into. A Government agent in Chicago by the name of Hinton G. Claybaugh has the matter in charge. Mr. London. You lay great stress on maternity insurance? Mr. Potts. Yes, sir. Mr. London. You have in mind every other form of insurance that is covered by the expression "social insurance"? Mr. Potts. Absolutely. Mr. London. Disability insurance? 134 Mr. Potts. Accident, sickness, disability, or invalidity, unemploy- ment, old-age pensions, maternity, and dependency benefits. A complete and comprehensive form of social insurance is the urgent necessity of the American people of to-day, and it is their salvation from every point of view. In dealing with the trust, my attention is now called to the casualty underwriters which maintain similar organizations to that of the fire insurance companies, and they have a workman's com- pensation bureau through which all public policy methods must be ground out, and it is their business to carefully guard the inter- ests of the companies, so that they are not injured by any new insurance methods, such as social insurance. Mr. Keating. The committee thanks you. (Whereupon at 1 o'clock p. m. the committee took a recess until 2 o'clock p. m. the same day.) 135 VITAL CONSERVATION. [Note. — The subject of preserving and increasing the health and vitality of the people of the United States is very closely related to welfare insurance. On account tof Mr. Potts' advocacy of welfare insurance, his opinion was requested by I>r. Gustavo Werber of Washingrton, D. C, concerning a movement which he has begun for vital conservation. Mr. Potts' opinion, as printed by Dr. Werber in a pamphlet for futherlng his movement, is as follows.] Judge Rufus M. Potts, Superintendent of Insurance for Illi- nois, writes : "I have read with much interest your 'vital conversation' propaganda concerning, and plans for improving, mankind. My studies for the purpose of devising a system of universal insurance to secure the welfare of every individual against unforeseeable mis- fortune and disaster have shown me that there is a considerable and increasing portion of our population which even the most generous plan of welfare insurance could not directly relieve. This is made of congenital defectives and degenerates and the hopeless victims of disease and vice. "I have long held the view that avoiding the procreation, so far as is humanly possible, of defectives and degenerates, both physical and mental, and the prevention of disease, together with the counteracting of other factors which cause degeneracy, pauper- ism and crime, is the most important group of problems which confront modern civilization. Otherwise, this civilization is liable to be swamped by its best features — sympathy and philanthropy — which preserve the lives of defective classes and permit them to reproduce, which they do faster than the self-sustaining part of the population. "Noble examples, correct theories of government, wise and beneficent laws, honestly and impartially administered, efficient and just industrial and commercial systems, together with ample and patient instruction and training of youth in those things which are directly concerned with the personal character and economic efficiency of the individual, are all indispensable elements for the formation of a just, noble and generous national character. But all of these will be wholly ineffective unless the nation, is made up of healthy, sane individuals as units. We might as well attempt to erect a beautiful temple of brickbats and scraps from a rubbish dump as to try to build a great and noble nation out of born defectives and degenerates, or diseased, vice-corrupted inhabitants of a region however wide and fertile. "Consequently, the fundamental prerequisite in all attempts to engender a higher and grander national spirit in the United States, is the protection of the health and the increase of vitality of the Nation by prevention, so far as is humanly possible, of the 136 operation of pernicious environmental factors, and also by eliminat- ing the existing strain of defectives and degenerates by frustrating their reproduction. There exist, unfortunately, at present, very many different sources of disease and vice which are poisoning our national life and degrading our national character. There are numberless strains of tainted blood pouring forth an ever-increas- ing flood of degenerates, who fill our almshouses, asylums and prisons. "Your plan, as I understand it, is wide enough to include the gathering of scientific knowledge concerning, and education in all measures which would help to counteract national decadence, from whatever cause. I hope that you will be able, at any early date, to begin actual work along the most important of these lines. Unless far-reaching and effective measures "are taken, our national spirit will infallibly wane, until we ultimately arrive at the debased condition to which the great civilizatioris of the ancient world had sunk ere destruction overtook them. "I am particularly impressed with the idea you advance of a magazine or periodical constantly furnishing authoritative, up-to-date, expert advice concerning how to live healthy, happy, honorable lives, which would be circulated universally among the people of the United States. It would, perhaps, be advisable that such magazine be issued in various editions. A large part of each edition concerning universal human interests would be the same in all, but other sections would be varied to meet the needs of mothers and housekeepers; the requirements of farmers, factory workers, railroaders, sailors, and the other great occupations. "But preceding, or at least along with the regular publication of such a magazine, I would .suggest that there should be issued a series of pamphlets and books written by experts in plain, non- technical language, containing all the fundamental information available at the time of issue on such topics as the care of children, adult hygiene, the prevention of disease, proper food and clothing, the elements of good government, and the obligations of citizen- ship, as well as the conditions necessary to successful cooperation and exchange of products, which is the very foundation of modern civilization, and not neglecting rational pleasures and amusements. The elementary information collected in this series of books should then be continually amplified . and kept abreast of the advance of science and knowledge by the regularly published magazine. "It is nearly always impossible for the ordinary person — the average man and woman — to obtain information on such subjects when the need for it arises in his or her life. These subjects are always of great, frequently of supreme importance to the individual. Occasions constantly arise in real life where he must decide and act in relation to them. In the absence of correct and authoritative information, he will inevitably blunder frequently and do the wrong- thing, thus not only marring his own welfare, but frequently de- stroying also the happiness of others. Such books and periodicals would prevent most errors arising from ignorance, and would be 137 of more benefit to our people and do more to perfect and ennoble our National character than any agencies now in existence. "I would especially. commend this idea to the consideration of wealthy philanthropists. In no other way could money accomplish so much for the people of our Nation. I trust that you will find abundant ways and means available to further the cause of 'Vital Conservation.* " 138 UNDERWRITERS' ANNEXES AND AGENCIES. [Note. — The question of the operation by Are insurance companies of so-called underwriters' annexes or agencies is one which has been discussed widely for a number of years and which had never been passed upon by the courts or by any insurance department. Early in 1914, a formal complaint was made to Mr. Potts, as insurance superintendent, alleging- that these annexes were illegal and that their operation was without warrant of law, in Illinois. He consequently had a public hearing on this subject, at which the companies engaged in this practice were represented by their officers and counsel, and the complainants were also present. As the result of this hearing, the following ruling was issued, which, being in relation to an important unsettled insurance question, is deemed of sufficient Interest to be presented herewith.] FINDINGS IN RELATION TO THE ISSUANCE OF "UNDERWRITERS" POLICIES IN THE STATE OF ILLINOIS. Complaint in writing has been filed with this department, alleging that certain corporations and persons were conducting the business of fire insurance, in this State, contrary to law, by the issuance of so-called "underwriters" policies. In order to be fully advised in the premises, due notice of a public hearing, on this subject, June 1, 1914, at this department, was given to all corporations and persons interested. At said hearing all insurance companies, which are members of the National Board of Fire Underwriters and issue "under- writers" policies, were represented by counsel; also other corpo- rations and persons interested. At this hearing the evidence, under oath, of all persons desiring to be heard was taken, a copy of which evidence, together with all exhibits, and briefs submitted, is hereto attached, and made a part of this finding. FINDINGS OF FACT. Upon consideration of the complaint and evidence, I find that it is my duty under the laws of the State of Illinois in relation to proper supervision of insurance to take action thereon. I find that, in the year of 1913, there were 205 outside stock fire insurance companies doing business in the State of Illinois, with a total premium income of $26,037,000, but that there were only six domestic stock fire insurance companies doing business here, with a total premium income of only $351,000; that during the past few years there has been a very great increase in the pro- portion of the so-called "underwriters" policies to the total number of fire insurance policies issued in the State of Illinois, and that, concurrent with this increase, there has been a great increase in the amount of reinsurance premiums paid to companies domiciled outside of the United States, viz, from 20 million in 1910, for all the United States, to more than 38 million in 1913. 139 I also find that during the past few years, in the United States, many joint stock fire insurance companies, which have done busi- ness in lUinois, have ceased to do business, the great majority of which have reinsured, becoming either an "underwriters" agency or a "subsidiary" of the company in which they were reinsured, for example: In 1913, 32 companies ceased to do business in the United States, of which 30 continued their existence, either as a subsidiary company or an "underwriters" annex, which shows the marked, prevailing tendency by the use of "underwriter," etc., toward the centralization of the insurance business. By reference to authoritative dictionaries, and legal decisions, I find the word "underwriter" is defined to be an insurer; that is, one who for a consideration agrees to pay losses by fire, etc., but, from the evidence presented at this hearing, I find, that the so- called "underwriters" policies are contracts put out by some person or persons termed "underwriters" or "underwriters" agencies, but which person or persons issuing said policies do not, themselveSj by the same or otherwise, agree to pay the losses insured against therein, but such losses are therein agreed to be paid by one or more regularly incorporated insurance companies. Consequently, the word "under- writers" in connection with the issuance of said policies is decep- tive, being different from the universally accepted meaning of the word. The design and typography of said "underwriters" policies differ widely, some being of such a character, that only by a very careful examination would it be discovered by the holder that the "underwriters" are not the real insurer, while others are less objec- tionable in this regard, but it is impossible to discriminate in this respect between those policies which are highly deceptive and those comparatively free from such objections. "Underwriters" policies contain other fKDSsibilities of deception and misleading of policy- holders in different ways, such as permitting an owner requesting two policies in different companies to be given one policy in a cor- poration and another in an "underwriters" backed by the same corporation. Also where several companies join in one "under- writers" policy, it is, in this State, always so worded that the liability is "several" instead of "joint," so that the insured has no greater security than he would have from each "parent" company's separate policy for its share of the risk, but the insiired is fre- quently led to believe that by the Union of several companies in one policy his security is improved. Certain "underwriters" adver- tise assets and also, in certain books and manuals which are known as standard insurance publications and which are commonly placed by the "underwriters" in the hands of their agents for use in pro- curing business, most of the "underwriters" are listed as having assets, although, as "underwriters," they have none. This is deceptive. I further find, that the "underwriters" plan was devised many years ago, for the purpose of combining the efforts of several small companies, in. order that they might secure and handle larger lines of insurance, but that there has been a gradual and radical change in the 140 use of "underwriters" policies, until the original purpose has almost entirely disappeared, and "underwriters" are now usually employed for the purpose of creating and maintaining numerous organizations for business-getting purposes only. Out of the entire number of "annexes" doing business in the United States, about 90 per cent rep- resent only one company, which is thus able through its annex or annexes to divide itself into as many business-getting entities as it maintains annexes, some companies having as many as eight. One present reason for the creation and maintenance of "underwriters" is the desire of the companies to obtain multiple representation in local territory and thereby evade the usual and recognized "one agent" rule of local insurance boards and associations. I find further, from the evidence presented at said hearing, that the issuance of the so-called "underwriters" policies, as carried on at the present time, affects unfavorably the insurance business, and the public welfare, in various other ways, for example : It is apt to bring about excessive liability of "parent" companies in congested districts of great cities ; it is sometimes used as a method by which an insurance company writes policies otherwise than through its local agent — com- monly called "overhead" writing ; it allows, in effect, several organiza- tions to do business on one capital. If each "annex" entity were a corporation, the statutory capital would have to be put up for each, but the "underwriters" plan evades this necessity. Consequently, new capital is discouraged from entering the insurance field for it can not compete on equal terms, with going insurance organizations, operating practically without capital. Such competition tends also to eliminate the smaller companies. The total result is the present rapid centraliza- iton of the insurance business in a few great corporations. I find that so-called "underwriters" conduct their business in sub- stantially the same manner as ordinary insurance corporations ; they operate and maintain fire insurance agencies, by which business is solicited and secured in this State ; they make contracts of fire insur- ance, issuing policies in various forms in evidence thereof ; they collect premiums, adjust and pay losses and in all respects perform the same functions, in the same manner as ordinary insurance corporations, and this is carried to such an extent that "underwriters" frequently become ostensible competitors of "parent" companies for business. CONCLUSIONS OF LAW. I find from consideration of the above facts, and the laws of the State of Illinois in relation thereto, that I am charged by statute with the enforcement of all laws in this State relating to insurance or insur- ance companies and concerns organized or doing business in this State and that the issuance of so-called "underwriters" policies, in this State, is contrary to law in the following particulars, among others : (1) The "underwriters" plan, when several companies united in one policy amounts, in substance and effect, to a partnership between corporations, which is not permitted by law. (2) The unmistakable tendency of the "underwriters" plan being the discouragement of new capital from entering the insurance field, the absorption of smaller companies and their replacement by 141 "annexes" .with a consequent centralization of the insurance business ; its general effect is toward the creation of monopoly, which is contrary to public policy, the common law, and the statutes of this State. (3) The agents of said "underwriters" violate the law because they do not take out, as such, the licenses required of all insurance agents in this State, under the different sections of the statutes relating to different conditions, etc., thus, making such agents liable to prosecu- tion for violating these sections, of the statute, as well as under the general criminal laws of this State, for representing fictitious entities. (4) If it should be admitted, as sometimes claimed, that the "underwriters" are merely departments of the "parent" company then their use amounts to such "parent" company doing business under other than its true corporate name, which is contrary to the criminal laws of this State. It is the evident intention of the statute, that all corporations shall advertise* and do business, only in the names given in their charters. (5) The numerous possibilities of deception in "underwriters" policies, beginning with the very name, as well as the actual violations' of the statutes against deceit arising through them, render them con- trary to the spirit and letter of our laws. Insurance contracts, being gotten up by the insurer, the insured having no voice in shaping the terms thereof, they are, in law, to be most strongly construed against the maker. Judged by this legal rule, "underwriter" policies are, in spirit as well as in practical working, obnoxious alike to good faith and the rules of positive law. (6) Such "underwriters," although they function for all practical purposes as insurance corporations, do not fulfill, or attempt to fulfill, the requirements of law relating to insurance companies doing busi- ness in the State of Illinois. As at present conducted, there is no supervision or control over their operations, as contemplated by statute, in relation to all insurance business. Legally, they are mere fictions. There is no permission of law in Illinois for insurance companies to do business by such method. It is illegal, amounting, in substance, to doing business as an insurance corporation without having been incor- porated, which is a criminal offense. Companies so conducting busi- ness exceed their corporate powers, such "underwriter" plan. not being mentioned in or contemplated by the charter of any insurance company doing business in this State, in any form whatever. CONCLUSION. The combined effect of the "underwriters" plan, as at present operated, is the development of an injurious system, based on fictitious entities, which is prejudicial to the insuring public, and indefensible either as a matter of law or of correct business procedure. Therefore, taking into consideration the facts and law in relation to said matter, by virtue of the duty imposed on me and the authority vested in me by statute, and for the protection and promotion of the best interests of the People of the State of Illinois, it is my opinion that such practice of issuing so-called "underwriters" policies, in this State, is illegal and without warrant of law, and, as required by statute, I shall direct that proper proceedings be instituted in the courts of this 142 State against all companies issuing such policies, to compel them to conform to the laws of this State. Dated at Springfield, Illinois, this 16th day of June, 1914. RuFtJS M. Potts, Insurance Superintendent. [Note. — The National Convention of Insurance Commissioners in a resolution adopted at their meeting oh December 12, 1916, at New York City, denounced "underwriters' annexes," stating that "we believe same to be wrong In theory and bad in practice."] 143 PROTECTING CONGESTED DISTRICTS IN CITIES. Address Before the National Convention of Insurance Com- missiopers, Monterey, California, September 22, 1915, at Its Forty-sixth Session. During the marvelous century Just passed a marked change has occurred in the location of human dwelling places in civilized countries. The mass of mankind formerly lived on isolated farms or in small agricultural villages, but vast industrial expansion has brought about a continually increasing concentration of men and their families in great manufacturing and commercial centers, thus forming our great cities. In the heart of every large city will be found a congested district. Many weighty problems arise through the growth of these congested districts. One of the most important of these is the protection of property and life therein against conflagration danger, which is the subject of my address. It is said that the greatest congested district in the world to-day is in New York City, extending from Fourteenth to Chambers Street, and comprising an area of 3,088 acres. The next in the United States in size and value is in Chicago, covering 753 acres, followed by Philadelphia, 550 acres; Baltimore, 417 acres; Boston, 335 acres; San Francisco, 313 acres ; St. Louis, 297 acres ; Buffalo, 348 acres ; Cleve- land, 213 acres, and Pittsburgh, 212 acres. All other large cities con- tain corresponding congested districts. From these figures we may understand the magnitude and value of these districts and the gravity with which this subject should be considered. The elimination of the conflagration hazard in the congested dis- tricts of our cities is a subject of the greatest interest to every insur- ance commissioner, not only on account of the great danger to life and property, but also because the conflagration hazard is the final refuge of the insurance "combine" and applied by it to all districts of all cities under all circumstances, and thus made the universal excuse for excessive premium rates and justification for the "combine's" monopoly. It is to be deeply regretted, that instead of trying to find a remedy for the conflagration hazard, the insurance interests ever in- dustriously foster the idea that on account of this alleged peril the companies are entitled to the same sympathetic license and immunity from prosecution for violation of .State and National laws which is tacitly extended to soldiers and sailors because they risk their lives in deadly battle or face the dangers of the stormy deep. In past ages it was firmly believed that periodical outbreaks of cholera, yellow fever, and other contagious diseases, as well as con- 144 tinual suffering' and deaths from diphtheria, tuberculosis, and other infectious diseases were scourges sent by God and could not be pre- vented. Nevertheless, in our time, practically complete protection has been established against contagious diseases, which correspond to con- flagrations, and great progress has been made toward the prevention of infectious diseases, which correspond to every-day fires. The con- flagration hazard of congested districts can be more effectually elimi- nated than was the yellow fever danger, and the every-day fire loss can be as much reduced, by preventive measures, as deaths from diphtheria, by the antitoxin treatment. The difficulty is not lack of knowledge, for modern architectural and engineering sciences have invented and developed ample and effective preventatives for epi- demics of fire'. For a conflagration to be possible there must exist concurrently, many defective conditions such as use of improper building material, faulty architectural designs, general carelessness in construction, as well as undue accumulation of fire-breeding materials. These con- ditions are permitted to continue by reason of insufficient and unen- forced state laws and municipal codes, as well as on account of the failure of the insurance "combine" to encourage protective measures, by allowing adequate reduction in premium rates therefor. The "combine" also actually countenances fires by permitting a general system of overinsurance. The chief consideration in fire protection of the congested districts of cities is the prevention of conflagration. This, of course, does not mean that we should fail to consider ordinary fires because, in the first place, these, when all taken together, cause considerable loss, and, in the second place, each ordinary fire is a potential conflagration. Fortunately the same preventive measures are effective against both. In the historical conflagrations from the great fire of London in 1666, down to those of Chicago and Boston in the seventies, the great losses were due to the combustible character of the building construction then universal, as well as the insufficiency and inefficiency, as judged by modern standards, of the fire fighting equipment of those days. I believe, however, that under present day conditions of a large proportion of fireproof and sprinklered buildings in the con- gested district of most cities, and the remarkable efficiency of modern fire fighting equipment, that the liability of serious conflagrations in any of our important cities has been immensely reduced. There remains nevertheless some possibility that a conflagration may occur in such districts of our cities, so that we should consider anxiously and carefully some method by which this possibility can be entirely eliminated, and the congested districts of our cities immediately rend'- ered secure from all danger of a conflagration. If all buildings in such districts were made fireproof, this alone would not prevent all danger of conflagrations. Experience has demon- strated that ordinary fireproof buildings can not unaided protect their occupants and contents in a conflagration. The heat will quickly break through ordinary windows and set on fire the combustible con- tents which will usually be completely destroyed, leaving nothing but 145 the windowless walls as in the Edison plant. We must, consequently, seek other means than simply the construction of fireproof buildings to render a congested district entirely safe, although such buildings help to prevent an ordinary fire therein from spreading. What is needed is some method which will remove every pos- sibility of a conflagration occurring in congested districts, and which is also financially practicable. Fortunately, experience and the studies of architects, engineers and fire-prevention investigators have dis- covered and developed means for rendering the congested districts of all cities practically fireproof, and this at a cost which is not excessive. While there are a number of minor measures, each capable of con- tributing something to this end, there are two which are agreed by competent authorities to be of paramount importance. These are: (1) The protection of all elevator, airshafts and floor openings, by metal doors or wired glass, and a similar protection for every exterior open- ing, and (2.), the installation of a complete automatic sprinkler equip- ment in' every building in a congested district. It is possible that for a few of the worst "conflagration breeders" the only rational remedy is removal, but for a large majority of the buildings, this is not necessary. Take any well-built concrete, brick, stone or protected steel frame building, give it a noncombustile roof, protect every skylight, every wall opening, elevator shaft or stairway, either by iron doors, wired glass windows, or by automatic fireproof shutters, and above all, provide it with adequate sprinkler system, and the building will be safe from itself, and at the same time become a means of protection to its neighbors. Even a fire trap can thus be turned into a redoubt against conflagrations. In order to properly understand how these means are sufficient to render the congested district of a city fireproof, we should first con- sider what a conflagration is and how it spreads. A conflagration is a fire which extends beyond the building in which it originated, or "a fire so hot as to keep firemen at a distance." It is the way in which the fire spreads which is the essential characteristic of a conflagration. If a fire spreads only by the contact of flames or the dropping or burn- ing brands on other buildings, it can be readily controlled by any effi- cient fire department. However, in a true conflagration the communica- tion of fire does not happen in this way, but is through what is com- monly called the "hot-blast" action. This "hot-blast" action is ordi- narily regarded as the effect of the intense heat frbm the large fire. This is supposed to be the reason that buildings burst into flames before they are touched either by brands or actual flame. In the accounts of every great conflagration will be found mention of instances of this kind. In the same descriptions there usually occur also instances where buildings have wholly or partially escaped the effects of the fire, although in the path of the conflagration, and surrounded by buildings which have been utterly destroyed. Their escape can not be attributed to the material of which they were composed. If the intense heat alone was the cause of the advance of the conflagration, there —10 P s 146 would be absolutely no way of explaining why these buildings escaped. In the Baltimore fire of 1904, the two-story Safe Deposit Company Building was entirely unharmed, the brick work and iron shutters showing but little effect from the terrific heat.^ The Alexander Brown Building, likewise a two-story building, but protected by wired glass windows, was also practically unharmed.^ The explanation of all these strange occurrences is that in con- flagrations buildings are not set on fire from a distance by radiated heat, however, intense, but in an entirely different way. I will attempt to explain briefly what this so-called hot-blast action really is. When a fire attains the magnitude of a conflagration, we have intense heat acting on immense amounts of combustible substances. This intense heat roasts out of the partially consumed material immense Volumes of combustible gases, just as siich gases are roasted out of the coal in the retorts of a gas factory. These combustible gases will burn when- ever they come in contact with sufficient oxygen of the air, but in a conflagration the volumes generated are so enormous that sufficient oxygen can not be immediately obtained from the surrounding air to at once consume all these gases. The result is the generation of large volumes of unconsumed combustible gases at very high temperatures, which drift with existing air currents. When these masses of super- heated gases strike a building, the heat will break out ordinary window glass at once, so that thie gas gains access to the interior of the building where sufficient oxygen will be found to allow combustion of the gas to take place. The heat of the gas itself is usually sufficient to bring about self-ignition, just as in the cylinder of a Diesel engine. It is probable also that ignition sometimes occurs from lights in tihe building or even from matches ignited by the heat. The same phenomenon sometimes occurs when a large volume of such gases strike a tree in full leaf. The mass of leaves detains sufficient oxygen for combustion so that the tree top bursts into flame. Those of you who have watched large fires of any kind have doubtless noticed the bursting forth, high up in the air from time to time, of sheets of flame, separate from those issuing directly from the fire. This is another phase of the same action. In these cases the superheated, combustible gas rises upward until a place is reached where sufficient oxygen is available to sustain com- bustion. Then, either ignited by its own heat or by the sparks and brands also carried upward, the gas takes fire and we have a flash of flame. i , i n^n' Keeping this in mind, it is easy to understand how a conflagra- tion spreads in this way with such amazing rapidity and soon becomes absolutely uncontrollable. It is as if the buildings in the path of the conflagration were saturated with gasoline. It explains why, when the genuine conflagration action sets in, that the best fire fighting equip- ment is practically helpless.* »Cyc. Fire PrevenUon and Insurance. VoL 1, p. 23. 'Cyc. Fire PrevenUon and Insurance. Vol. 1, p. 35. ' This "hot-blast" action has been well explained by Mr. S. H. Lockett, In an address before the twenty-fifth annual meeting of the Fire Underwriters' Associa- tion of Uie Northwest, and can be found on page 90 of the proceedings of that asso- ciation for 1904, to which I refer anyone desiring further details 147 An account of the San Francisco conflagration says: "There were pauses at some of the big buildings, almosi extinc- tion; then gases would ignite in those great piles, lighted via the unprotected windows, and everything burnable within them seemed to be on fire at one time." * Applying this knowledge to the prevention of fires, we are readily able to understand how the protection of all openings in buildings with iron shutters or wired glass windows, together with the provision of automatic sprinklers on the inside will absolutely prevent the spread of a conflagration. Suppose that a fire has become a conflagration and these unconsumed gases drift toward a neighboring building, the heat will be radiated into the interior of the building through the wired glass or iron shutters, not usually sufficient, however, to ignite the combustible material withiq the building, at least not for a considerable time. Instances are known where the heat was so intense as to par- tially melt the glass in the wired glass windows, but nevertheless the fire was kept out.° But suppose that the building is, as it should be, also protected by automatic sprinklers, then if the heat radiated through the wired glass .windows or iron shutters becomes dangerous, the sprinkler heads close to the opening will spout forth a spray of water which will prevent the temperature rising to such a point that ignition of contents can take place. But even if the protected windows or other openings should fail and fire spread to the interior of the building, the immediate opening of the sprinklers would turn loose a spray of water which would cool down the gases, and also ex- tinguish the flames, so that the fire would be either entirely quenched or the action reduced to such an extent that the generation of com- bustible gases would cease, which would stop the conflagration action. In any case, the building will stand and the flood of unconsumed gases will be deflected upward and either burn harmlessly in the air or become so cooled as not to burn. All that is then necessary, is to prevent new fires originating from any burning brands carried by the wind. This can easily be done by an efficient fire department if all roofs are noncombustible. Of course, if all of the buildings in any congested district were protected with iron shutters, wired glass windows and automatic sprinklers, kept at all times in good operating condition, it would be impossible that any fire would ever attain such size that this "hot- blast" action would begin. Consequently, the only time when the deflecting and cooling functions of these buildings would come into play would be when a conflagration originating in an outside unsprink- lered district and driven by a high wind, might approach a congested district. In such case, it is impossible that the conflagration could pass more than one or two tiers of buildings pfoperly protected and sprinklered. *Cyc. Fire Prevention and Insurance. Vol. 1, p. 51. ' On page 44, Vol. 1, of Cyclopedia of Fire Prevention and Insurance is a strik- ing photograph of a window which passed through a Are where the heat was so intense that a part of the wired glass melted and ran down onto the window sill, but nevertheless nothing inside the building took flre, even though it was not protected by automatic sprinklers. 148 These means for protecting cities have been urged by competent authorities on fire prevention for a long time. Hon. Herman L. Ekern,' former Insurance Commissioner of Wisconsin, says : "The congested parts of our cities can be made conflagration and fireproof immeditely. A complete sprinkler equipment will do this for an entire city district the same as it now does this for an entire mer- cantile or manufacturing plant."* Albert Blauvelt, in a paper read before the American Society of Mechanical Engineers in 1913, on the subject of "Debarment of City Conflagrations," says: "Such a hot blast has never been stopped by firemen while the wind held, but has, however, been checked and deflected upward by barriers consisting of two or more fire walls or their equivalent, with a free air space between, as in the case of fires out of control, which 'have been stopped by a mere alley with buildings fully shuttered on each side. "It has also been possible to absorb the hot-blast attack of such fires by a very deep and fixed mass of spray in the form of sprink- lered buildings. The Boston fire of 1893 was largely absorbed by an exceptionally good water supply in such form, and a somewhat similar experience was had at Toronto in 1904." I am firmly convinced that the time has arrived when the protec- tion of all openings and the installation of sprinkler systems should be compelled by law in the congested districts of all our great cities. The saving on account of reduced insurance rates would be so great, that it would pay for the expense of installation in a few years, and the saving of life and property and prevention of loss through inter- ruption of business would be far greater than is possible to replace by mere insurance. It may be said that, if this were true, it would bring about the installation of sprinkler equipments by all building owners through motives of self-interest. However, these motives will not control in every instance, and there will always be some "hard up" and negligent owners who will fail to equip their buildings with sprinklers and other protection, especially when they are able to obtain overinsurance. A proper law requiring complete protection of all openings and adequate sprinkler equipments with ample water supply and "Siam- ese" outside connections would eliminate the conflagration hazard from any district composed of well-constructed buildings. At the recent meeting of the International Association of Fire Engineers at Cincinnati, one of the topics for discussion was : "Would the Compulsory Sprinkling of all Business Buildings and Blocks in the Congested Districts of a City Eliminate a Possible Conflagration in such Districts?" I have read with much interest a report of this discussion. While there was naturally some difference of opinion as to the degree of effectiveness of automatic sprinklers alone, to absolutely prevent con- flagrations in congested districts, yet, every speaker endorsed and recommended them as the best known means for this purpose. • Wisconsin Insurance Report, 1915, p. XX3CVI. 149 Some of the fire chiefs seemed to think that the form of state- ment of the topic implied that fire departments were to be abolished and automatic sprinklers alone depended on to extinguish all fires in congested districts, and a number of instances were related where, owing to peculiai- circumstances, sprinkler equipments had required aid from fire departments. No reasonable person would expect to dispense with fire departments, even if congested districts were pro- tected and sprinklered in the most scientific manner, and all I say concerning the protection of such districts assumes the presence of an efficient fire department. The instances narrated of failure of sprinkler equipment to extinguish fires were all cases where either the equipment was defective, or had been tampered with by incendiaries, or where, owing to the character of the risk such as explosive or very inflammable articles, the fire instantly spread throughout the building, or where, because the goods were stored on very deep shelving, or on account of other special structural features, the water from the sprinklers was unable to reach the fire. These are cases which occurred under present-day conditions of voluntary, nonstandardized sprinklering, and would be almost wholly eliminated if standardized sprinklering was made compulsory, and this was frequently inspected by a vigilant fire department, while at the same time proper rules were rigidly enforced regarding the storage in congested districts of explosives or highly inflammable substances, such as gasoline and oils, as well as the internal arrangement of the contents in buildings in such a manner that water from the sprinkler heads could reach every part. There would, of course, always remain a remote possibility that fires might gain some headway from incendiarism where the sprinkler equipment had been purposely disabled, but it would be impossible for such a fire to spread into other sprinklered and protected buildings, so as to become a conflagration, and the possibility of a widespread conflagration would be as remote as the danger that the world will be destroyed by colliding with a comet. A discouraging phase of this matter is the fact that instead of encouraging the protection of openings and the installation of sprinkler equipments, the insurance interests have been passive, and except where compelled to do so by competition with mutuals, have refused to give adequate reduction in rates for these improvements. The reason is apparent. The mutuals have, by means of sprinkler equip- ments, reduced the cost of fire insurance as low as one-tenth of the "combine" rate, and maintain this reduction permanently. If the stock companies had to reduce their premium rates accordingly, as they would have to in order to' prevent all business going to the mutuals, their revenues would be sadly reduced. I would make the further recommendation that, whether in con- gested districts or not, all tall buildings in which, on account of being used for manufacturing purposes, or for any other reason, large numbers of people congregate, should be required by law to have "independent tower" fire escapes, or similar safety devices. One of 150 the best forms of these is a fireproof shaft within the building, but with no openings into the interior of the building. Access to the shaft is obtained through fireproof doors opening on metal balconies, on which balconies doors also open from the interior of the building. In case of fire, all the occupants of any floor have to do is to step on the balcony, walk a few feet, step into the fireproof tower and descend on the stairways therein, absolutely secure from danger by any fire between them and the ground. While, of course, wooden buildings should not be permitted in the congested districts, still wooden factories and other buildings hav- ing noncombustible roofs, by a proper sprinkler equipment, including water curtains on the outside, can be rendered so nearly fireproof that they can safely be permitted in outlying districts of large cities where they would otherwise be inadvisable. The cost of such an equipment is less than making the building of brick, stone or concrete, and the protection from fire is much superior, for in an unsprinklered fireproof building, the contents will burn. But with a completely sprinklered wooden building, both the building and the contents are rendered prac- tically fireproof. In addition, large sprinklered buildings even of wooden constructipn, such as factories, warehouses, mercantile estab- lishments, etc., outside of the congested districts, would help to check conflagrations in those areas where the value of a majority of the buildings is so low that a law requiring general sprinkler equipment would not be justifiable. In addition to the physical improverrients which I have outlined there are certain reforms in our laws relating to insurance and fires which would aid in preventing conflagrations as well as other fires. Overinsurance should be prohibited. I believe that it would be still better to allow insurance only to the amount of 85 or 90 per cent of the value of the property. Signed applications and a personal inspec- tion by the local agent should be required, with a criminal penalty for misrepresentations. If overinsurance were thus made impossible, arson for profit would be prevented. Mr. Joseph Johnson, former fire com- missioner of New York City, estimates that arson fires for profit cause from 25 to 40 per cent of the fire loss in greater New York.' A similar proportion exists in most large cities. The publication in each state of a complete and plainly written book for free distribution in which all the various causes of the enormous fire loss, and the means of fire prevention were detailed, would be valuable. This should be so prepared as to be available for instruction on these subjects in the public schools, which should be required by law. Far surpassing, hbwever, all other fire and conflagration preven- tion measures are the sprinklering and protection of all openings in all buildings in the congested districts of all cities. This will practically prevent conflagrations. The cost is not excessive and would be saved to the property owner in a few years through the inevitable reduction in insurance rates. It can only be accomplished by the enactment of ' Review of Reviews, Vol. 45, p. 709. 151 proper laws in the different states. There is no other way in which this convention can accompHsh so much good for the people of the United States as by securing such laws, and I urge that you take such action as will inaugurate the educational campaign which is necessary to secure the enactment of such legislation in all the states. 152 STATISTICS OF FIRE INSURANCE EXPERIENCE. [Note. — One of the most important problems before the insurance world to- day is the collection of statistics of the experience of Are insurance companies. In relation to the different classes of risks and of different localities. This problem has been under consideration by the actuarial committee of the National Conven- tion of Insurance Commissioners, with particular reference to the offer of the National Board of Fire Underwriters to furnish certain statistics. Mr. Potts is a member of this committee. His ideas on the question are shown by the foUowins excerpt from the proceedings of the forty-seventh session of the National Conven- tion of Insurance Commissioners and his minority report as a member of the actuarial committee of said convention.] Mr. Potts of Illinois. Mr. Chairman, I have argued this question so many times that I do not now feel like warming up for another argument. I am not training for any race, hence, I need no "work- outs," but I can not refrain from calling your attention to a fatal omission in the work of this actuarial bureau which makes the statis- tics reported by it fundamentally wrong, and until this omission is supplied, its work is absolutely worthless so far as being of any service to either the insurance departments or the insuring public. The ques- tion asked by the commissioner of Kansas is the one that is asked by every man who gives this matter a moment's study. The people of the State of Illinois would no more be satisfied with a report of the work of this actuarial bureau wherein it reports only total writings and fire losses, with the United States as a unit, than they would be if my department, through which I, as Insurance Superintendent, collect more than $800,000 a year and pay out about $100,000, would report only receipts and disbursements, without listing the source of the receipts or itemizing the payments. When this actuarial bureau will include premiums, giving the premiums earned upon each classi- fication of the total business written, making the respective states the unit, then its work will be of inestimable value not only to the insur- ance departments but to the insuring public, which pays the premiums. It has been that fundamental error, which makes its statistics unservice- able and worthless, that has prevented me from acquiescing in the work of this bureau. I have corrected that error so far as my State is concerned and will be able to give to the people of Illinois, as soon as the same is completed, which will likewise be serviceable to all of the states in the Union, the most valuable information ever issued upon the question of fire insurance statistics. I am not sure that in every instance these statistics will sustain my version of this question and I am not sure that they will not do so, but in order to determine the exact facts I have established a classification of all risks and have followed the National board, in so far as possible, and have required the companies doing business in Illinois to report not only the writings and the losses but the premiums upon each class, making 'the State a unit. If an insurer can go to the records of my department and obtain full and complete information, covering the amount of business, the 15a losses and the premiums paid, of the class in which his property is carried, then he will get just what is due him in the way of informa- tion, and to require him to accept anything less is a fundamental mistake. I have tried hard to follow these people but they are not right on this question. Early in life, when I first began to teach school, a little incident happened, which I have always remembered, and it has been brought to my mind at various times in my efforts to work with the managers of the actuarial bureau. During the first month of my first term of school a problem was attempted by the algebra class and they failed to make the answer agree with that reported in the book. I rushed to the blackboard, with full confidence in my ability to show the class just what I could do with a difficult problem. I worked a little while and then began to perspire, and finally exhausted myself, and with great humiUation announced to the class that I could not work the problem. I th'en tried and tried again, and finally told the class that I had worked that problem and that the answer in the book was wrong. With slight manipulation of the figures I could have reached the answer named in the book and the class would not have known the difference. Through my defiance of the answer in the book the schpol directors became somewhat disturbed, and after a conference I told them I would submit the problem to the county superintendent of schools who, upon solving it, announced that the book was wrong and that I was right. I did not then, nor do I now, know how to force a false answer, and for me to join in this report would be the forcing of a false answer. I have done everything I could to work this statistical problem in accordance with the version of the actuarial bureau and have tried to believe that its efforts were made in good faith and that its experience in handling these statistics would justify me in substituting the judg- ment of this bureau for mine, but for me to join in this report would be to manipulate the statistics in a way that I know is wrong, and this I can not do. When I think of the people of my commonwealth and know what they are entitled to from this actuarial bureau, and what is and has been kept from them, whether designedly "or not, and then when I think of what statistics should be placed of record in my department, accessible to the insuring public, which pays the premiums, I am com- pelled to stand by my solution of this problem and must decide that the work of the actuarial bureau is not worthy of endorsement. I regret that I can not join with the actuarial committee in this report. ******* The PRESIDENT. I think that completes the election of officers, and I take it that the next duty before us is the installation of the new president. Mr. Potts of Illinois. Will you permit me to return to some business matters before this president leaves the chair? The PRESIDENT. I do not wish to insist, but I think the gentleman from New York should take the chair. 154 Mr. Potts. I only want to ask permission to file a minority report of the committee of which I am a member — ^the Actuarial Bureau Com- mittee — and ask that I be relieved from signing the majority report that has been filed and present a minority report. The PRESIDENT. The gentleman from Illinois wishes to file a minority report in regard to the report of the actuarial bureau instead of signing the report of the committee, and I admire him for acting upon his conviction. Mr. Young. I see no objection, but it occurs to me that the report ought to be brought up before the convention. Mr. Potts. I presume that I should be given the same length of time and opportunity to prepare a minority report that was taken by the author of the majority report, and, with this in view, I will say that I will conform to the wishes of this convention in that respect. I can not stop to dictate it now. The PRESIDENT. We have already accepted and adopted the majority report so that the minority report will not be adopted but simply filed. MINORITY REPORT OF ACTUARIAL COMMITTEE ON WORK OF THE ACTUARIAL BUREAU (piItE INSURANCE) OF THE NATIONAL BOARD OF FIRE UNDERWRITERS. Not being able to concur in the report of the Actuarial Bureau Committee, I feel it my duty to present a minority report, because the questions considered by the actuarial committee are of supreme importance in relation to fire insurance rates, practices and busi- ness methods, all of which are intimately related to the fundamen- tal problem of the excessive cost and unjust and discriminatory operation of the fire insurance business under existing conditions. These questions are not understood by the insuring public. Their far-reaching importance does not seem to be realized even by the offi- cers of the insurance departments of our 48 states. Consequently, as a member of this committee I desire to explain the facts fully so that the people of my State and other states as well may know how and why they are kept in ignorance of the truth concerning fire insurance extortion and discrimination, and so prevented from securing relief from fire insurance oppression. The National Board of Fire Underwriters originated a half century ago. The actuarial bureau of this organization has as- sumed the function of collecting and supplying statistics presuma- bly for the benefit of both insurer and insured, but it has either failed to collect statistics from which the justice of insurance rates on different classes of property can be determined, or if it has such information, is now withholding the same from the insuring public. The National Board Actuarial Bureau which has tendered its services to the insui^nce departments of all the states for sup- plying fire insurance statistics, is only offering to collect statistics considering the United States as a unit, and giving the total busi- ness written in each class and the total losses in the same, but without any information whatever concerning the amount of pre- miums charged and collected. Such statistics are absolutely 155 worthless so far as informing state insurance departments and the insuring public whether the premium rates charged are reasonable or excessive. The insurance department of each state should have and publish information which would enable any property owner to ascertain the loss ratio on the class of property he owns, which can only be done when the total premiums received in that state upon that class, together with the total amount of losses paid in the same, is accurately reported. Any system of accumulating information that does not give these facts is fundamentally defec- tive. It amounts to fraud and is deceptive by offering something valueless, instead of the complete information necessary. In the final paragraph of the majority report, appears the fol- lowing : "Your committee recommends that the memhers of this convention adopt the classification of the actuarial bureau as a standard for their respective states without additions or deduction." This recofnmendation, that the National Board of Fire Under- writers' classification be adopted without additions or deduction, goes to the root of the whole matter. This clause was doubtlessly placed in the committee's report, because it embodies what is ur- gently solicited in this respect by the National Board of Fire Un- derwriters. The officials of said organization refused to furnish the Illinois department complete statistics and urged me to accept statistics collected on their worthless and deceptive plan without additions or deduction, for the annual classification report of their Illinois experience required by law in my State, from all the insur- ance companies doing business therein. To understand the im- portance of this request of the National board requires a consider- ation of the plan adopted by them in collecting and compiling their statistics. The only justification, for the work and expense of gathering and arranging fire insurance statistics, either by the companies for their own use, or requring them to furnish them to the insur- ance departments of the various states, is that thereby^ it may be ascertained if the premium rates charged by the companies on each of the different classes of fire risks are fair and. equitable. Most of the companies have voluntarily incurred the expense of compil- ing such statistics of their business for many years, for the purpose of determining whether or not the premium rates they charged on different classes of property were profitable. In the very beginning of the fire insurance business, it was perceived that it was not just to charge the same premium rates for fire insurance on different kinds of property, because some kinds of property were much more subject to destruction by fire than others; wooden buildings being more hazardous than brick; shingle roofs more dangerous than slate, metal or other noncom- bustible roofs; woodworking establishments much more liable to fire than marble works, and so on throughout all of the several hundred classes in which modern buildings and property can be classified. 156 At first the difference in rates was entirely arbitrary — simply a guess by the manager of the company at a premium he believed would be profitable. It was, however, later realized that the only scientific and just way of fixing the premium rates for various kinds of property was by compilation of the fire losses occurring on the different classes of risks and continuing this until it was found out what proportion, approximately, of each class of risks were de- stroyed by fire. . When this proportion or burning ratio is obtained, it is an easy matter to fix an approximately just and equitable rate for each class of property, by adding to the amount required to pay the annual fire loss, whatever was reasonably necessary for expense and profit. Fire insurance companies should be allowed to charge rates sufficient to pay the average losses on each class of property they insure, and also for reasonable expense and profit. The lat- ter items are included when losses are hereafter mentioned unless otherwise stated. As a matter of fact, it has been on some such plan as this that all of the successful fire insurance companies indi- vidually fixed their rates until the time came when these were fixed by a combine or combines, through open agreements, or secret ones when necessary, to evade the laws of the respective states, as is done at the present time. But even after the rates were fixed by agreement, (which always has been and is now essentially monopo- listic and illegal), the collection of fire loss statistics was kept up by the separate companies for the purpose of ascertaining the re- sults of their business, and particularly, for the purpose of finding out the classes which were most profitable. This business they made a special effort to obtain, and likewise avoided classes which their statistics showed were unprofitable. This brings me to the consideration of the crux of the whole situation. The absolutely essential feature for determining the justice of rates is a comparison of the amount received by the companies in premiums with the amount paid out by them for losses in each class. This was the information furnished the com- panies by their individual compilations of results of their busi- nesses. _ Unless the statistics furnish the means of making this comparison on each class with each state as a unit, there would be no more justification for collecting them, than recording the race, color or previous condition of servitude of all fire insurance policy- holders. When the National board adopted a system for the very commendable purpose as was claimed of combining the experience of all of the companies, good faith demanded that such plan should make possible the comparison of the amount of annual premiums collected on each class of property with the annual losses paid on such class, as had been done by the separate companies with their individual compilations. The significant fact that the National board plan does not in- clude the collection of the amounts of the premiums on each class, renders impossible any other inference than that the insurance in- terests wish to prevent the public from knowing what the relation is between the premiums collected on the different classes of risks, 157 and the losses paid in the same. The only reason for this is an entirely selfish, unfair, and unjust desire to conceal the facts from the premium payers. This is the tactics of every monopoly, but it is absolutely contrary to public policy and opposed to the best interest'of the people. If rates are just and equitable in relation to each class of property, there is no reason why the amounts of premiums charged by insurance companies on each class of property, in each state, should not be made known, so that the premium payers as well as the companies may know what the facts are. My conclusion as to the motive of the refusal of the National ' board to furnish the amount of premiums as well as losses is, how.- ever, not based on inference alone. The chairman of its actuarial committee, in the course of a discussion on this subject with my assistant in charge of fire insurance matters, when asked the direct question why they did not want to furnish the amount of premiums on the different classes as well as the losses, reluctantly admitted that it was because this would disclose the classes on which they were making lar'ge profits, and they would be liable to be compelled to reduce their rates on such classes. This admission, as well as the irresistible logic of the facts, clearly shows the cause of the indefensible position taken by the National board in regard to fur- nishing the amounts of the premiums on all the classes of risks. It is wrong for premium rates to be either too high or too low. In the first place, it is inequitable and intolerable to charge a class of property which suffers little or no destruction from fire a rate that exceeds what is necessary to pay the losses in such a class. My recent investigation of the fire business in Illinois shows that this condition exists at the present time with regard to many kinds of property. For instance, the class affected by such injus- tice more than any other is the one containing the greatest number of risks of all — dwelling houses. In the city of Chicago, the sworn statements of the companies in their 1915 classification reports required by my department, show that less than 30 per cent of the money collected from policyholders on dwellings, is returned to them in payment of losses. To charge such extortionate premi- ums, that the companies pay less than $1 for losses out of every $3 collected by them as premiums, is such an injustice that it is little better thnn open plundering. On the other hand, the fixing of a rate on any class of prop- erty which is not sufficient to pay its fire losses, is unjust and con- trary to public policy. Such discrimination and favoritism is fre- quently accorded to big interests having large lines of insurance. Whether granted through favoritism or not, it amounts to collect- ing from owners of nonhazardous property to pay losses on hazara- ous property, which is unfair. But' still worse, it allows and en- courages the owners of dangerous property to continue in their evil ways. It is well known among everyone who is familiar with the subject, that in certain classes of risks the larger part of the losses are criminal in their origin, the fires occurring for profit of the owner. This is not only one of the most heinous of crimes, but endangers adjacent property and causes frequent loss of life. 158 In certain other classes of risks where the losses exceed the premiums collected by the companies, the large fire losses are not due to the incendiarism by owners, but is chargeable to the crim- inal carelessness of owners and their refusal to install .automatic sprinklers and other modern methods of fire prevention. Nine fires out of ten which occur in mercantile and manufacturing estab- lishments are preventable by readily available methods. In estab- lishments which are properly equipped with automatic sprinklers, wired glass windows, etc., the fire loss is less than one-tenth of that of those not so equipped. Negligent or obstinate owners can not be excused on the ground that the expense of installing automatic sprinklers is excessive, because the reduction in insurance rates which can be obtained by the installation of effective automatic sprinklers will pay for the installation of such a system in from three to five years. If the information collected concerning fire insurance is com- plete, including the amount of premiums collected as well as the losses paid on each class of property, and the rates are thereupon adjusted accordingly, then the owners of extra hazardous property will be subject to a continuing and powerful pressure to adopt readily available modern methods of fire protection, which will render his property much less liable to fire. It is a discreditable but undeniable fact, however, that such a reduction of fire loss is the very thing which the insurance com- panies do not desire to see happen. If all mercantile and manu- facturing properties were sprinklered, the total amount of premi- ums from them would be reduced to less than one-tenth, which would mean a corresponding shrinkage of the insurance business, and a proportionate reduction of amounts of commission and profits from its banking departments, etc. These are the real reasons which have led and still lead the National Board of Fire Underwriters to refuse to furnish the com- plete results of their business, including the amount of premiums paid on each class. These reasons are absolutely contrary to the interests of the people. Therefore, I can not concur in the report of the committee which endorses the National board proposition. I do not believe that the members of the committee who have signed the majority report realize the full import of their action in approving and recommend- ing the acceptance by all of the states of the plan proposed by the National Board of Fire Underwriters without additions or deduction. The National board's incomplete plan of collecting fire insur- ance statistics was not willingly adopted, or in good faith, but was proposed only after they were convinced by the passage of laws in some states requiring the reporting of complete statistics to their insurance departments, that the insuring public would obtain damaging information, and they hoped that by inaugurating their deceptive plan,_ they would be able to prevent the passage of more laws of that kind by promising to furnish insurance departments statistics, which although superficially plausible and interesting 159 are, in reality, incomplete and deceptive, because they do not .fur- nish the information absolutely necessary to determine the equity of fire insurance rates. I have met with as much resistance in Illinois as the companies dared offer to the collection of complete and useful information. Every kind of an excuse was urged to get me to drop, or at least delay the collection of such statistics. As a last resort, some man- agers said that it was physically impossible to furnish the informa- tion. However, when it came to the point of choosing between furnishing complete statistics or discontinuing their insurance busi- ness in the rich fields of Illinois, these companies furnished the complete statistics, which shows that it was not physically or other- wise impossible to do so, but only that they wished to prevent the information from becoming' public. .Without implying in any manner personal criticisms of the members of the committee who signed the majority report, I am obliged to say that it amounts to an excuse for, and endorsement of, the deceptive and incomplete statistical plan adopted by the National board, and will mean additional delay in securing reform of the wrongs and injustices now prevalent in the fire insurance business throughout the United States. Consequently, I must respectfully but earnestly dissent from the recommendations of the majority of the committee that the plan of the National board be adopted without additions or reduction, although . I would further say that I believe that the classification adopted by the National board which is mentioned in the majority report, is as good as any whicfe has yet been proposed, and that if statistics based on this were complete and included the premiums paid on each class, as well as the writings and the losses, and were segregated according to states, that it would be very useful. I have adopted this classi- fication of risks in the annual reports of their Illinois business, re- quired from all companies doing business in the State, but demand that they furnish the amount of premiums on each class as well as the losses paid thereon. The reports for the 1915 Illinois business were the first com- plete reports on this plan. The compilation of these reports will be published in a short time, and will disclose that the insurance rates in Illinois are exceedingly inequitable, being too high in some classes, and too low in others, and will show strikingly the neces- sity for reform in my State. Similar complete information would show similar conditions in other states. If all of the states would collect complete classified statistics, fire insurance reform would be soon accomplished throughout the United States, and thereby relief afforded to all the people from the extortions and injustices prac- ticed upon them by the fire insurance combines. The majority report tends to hinder and delay this long de- ferred, much needed relief of the people of my State, as well as of all the United States, consequently, I have stated my reasons for dissenting therefrom at some length with "malice toward none and 160 charity for all" in the hope that this statement may do something toward counteracting the mischievous effect of the majority report of the actuarial committee. Respectfully submitted, RuFus M. Potts, Insurance Superintendent, State of Illinois. Member of Actuarial Committee. 161 EXTRACT FROM ANNUAL INSURANCE REPORT, PART I, FIRE FOR 1915. Report to Governor Edward F. Dunne on Investigation of Fire Insurance Conditions and Rates in Illinois. By Rufus M. Potts, Insurance Superintendent. [Note. — I have published, in pamphlet form, a report on the results of my investigrations into Fire Insurance Rates and Conditions in Illinois, which was men- tioned in my annual report for, 1914 (p. 12), as being at that time in progress. This report contains much important information which has not hitherto been collected and made available for the information of the citizens of Illinois. Conse- quently, I include said report herein with a few foot notes wherever necessary to explain subsequent developments.] State of Illinois, Insurance Department, Springfield. To His Excellency, Edward F. Dunne, Governor, State of Illinois. Sir: In my annual fire report, dated April 18, 1914, I stated (p. 12): "From the fact that I am now in the midst of an investigation into fire insurance conditions prevailing in this State, I am unable at this time to add my recommendations to this fire report, but, as soon as this investigation is completed, I will file with you a separate report, with proper recommendations." I have continued this investigation and find that the fire insurance business is illegally and oppressively conducted in Illinois and its methods demand radical legislative reform. The most objectionable feature disclosed is the usurpation by the stock fire insurance companies of powers, rights, and privileges not incident to their business and detrimental to the best interests of the people of this State. Such usurpation is accomplished by means of a nation-wide system of interlocking organizations, comprising all com- pany officials from the president to the local agent, with controlling boards dominated by Eastern influence. This immense system has established certain local "combines" in Illinois, for the purpose of fixing and maintaining exorbitant premium rates. Also about fifty of these "combine" companies operate "an- nexes," some as many as eight, through which they issue so-called "underwriters" policies. These "annexes" are illegal and fictitious entities, and are an effective aid in creating and continuing the fire insurance monopoly now existing in Illinois. Through the operation of these "annexes," the great Eastern companies have absorbed prac- tically all of the Illinois stock fire insurance companies They should not be permitted under any circumstances. —11 P s 162 An unfair, arbitrary and indefensible business policy is followed by the stock fire insurance companies in dealing with both the State and the public. After a careful investigation of fire insurance conditions and wide research into the legal, technical and economic phases of this question, I have formed certain conclusions, and make herein con- structive recommendations which will remedy the existing evils. I, therefore, beg leave to first call your attention to some underlying general principles upon which the fire insurance business rests; and then make a full presentation of the fire insurance business as it is carried on in Illinois. MAGNITUDE AND NECESSITY OF FIRE INSURANCE. Very few citizens of Illinois have any realization of the financial importance of the fire insurance business, nor of the amount of waste which annually occurs by fire. According to the official reports made to this department, the total amount of premiums received by stock fire companies in Illinois for 1913 was $26,037,910. According to the Spectator's "Insurance Year Book" for 1914, a standard insurance publication, the total income of all fire insurance companies doing business in the United States for the year 1913 amounted to $416,- 975,367. To better realize the immensity of these sums and what this fire loss means, compare it with the governmental expense of the State of Illinois and of the United States. The total expense of the Illinois State Government for the period of two years, October 1, 1910, to September 30, 1912, was $25,882,578, or $12,941,293 annually, so that the tax collected by the insurance companies in Illinois was over twice as heavy as the State tax. The total expense of the United States Government for the year 1912 was $654,553,963. Consequently we see that the people paid the fire insurance companies two-thirds as much as it cost to maintain the government of the United States. But in reality the total fire loss, direct and indirect, to the people of this country, exceeded the expenses of the United States Government. For, the total fire loss to the nation included this total income of the companies of $416,975,367, because if no fires occurred this sum would not have been spent, and there was also a great loss of uninsured property and property on which the insurance collected did not equal the total loss. Furthermore, in Illinois, in 1913, 387 lives were lost. The figures for the United States are not available for 1913, but, in 1907, 1,449 persons lost their lives and 5,654 were injured in fires. The mere monetary value of the lives lost and injuries sustained can not be estimated. But this is not all. The expense of equipping and maintaining fire departments in cities and providing fire protection in individual buildings must also be added. The grand total I will not try to estimate, but it is a staggering amount. The report of the New York Insurance Commission (1910), says: "The fire loss of this country averages nearly two hundred fifty millions a year, and is increasing; this is about $30,000 an hour, or $500 a minute, year in and year out. To this must be added at least the same additional amount for the maintenance of fire departments, 163 and nearly as much more for the experience of conducting the insur- ance business ; altogether in the neighborhood of $?50,000,000 a year of expenditures, becaflse of destructive fires; that is, fires cost us directly and indirectly, each year, more than the value of the cotton crop, and not only that, but along with this economic loss goes a fright- ful and horrible loss of life." Surely a matter of this importance is worthy our careful atten- tion and study. When we give it this, some astonishing results are disclosed, such as the fact that the expense of collecting and disbursing the fire tax is about one-half ; that the fire insurance business, as at present conducted, increases instead of diminishes the annual fire loss ; and that, in reality, the fire companies do not dread fires, but are content to have them occur. FIRE INSURANCE COMPULSORY. Under modern commercial conditions, fire insurance is practically compulsory. This comes from the fact that most mercantile, manu- facturing and other business is done on credit. Credit will not be extended to a merchant, manufacturer, or business man, unless his stock of goods, merchandise in transit, or articles in the process of manufacture are fully covered by insurance. Neither can loans be secured on real estate unless all buildings are fully insured. The insurance business is of direct personal interest to every citizen of the State of Illinois. The fire insurance tax falls, not only on property owners, but also on everyone who sleeps in a house or purchases goods in a store, for owners add the fire tax to the rental of their buildings and include it in the price of goods sold. These facts and conditions are not generally understood. HISTORY OF FIRE INSURANCE. A study of the history of fire insurance throughout the civilized world discloses an interesting situation. Search in the historical por- tions of numerous treatises on insurance and through the copious periodical insurance literature published in the English language, fails to give any adequate indication either of the history or of the existence, at the present time, of extensive and important governmental insti- tutions for the purpose of effecting insurance against fire in Europe. I find, however, that fire insurance, either by the state, province, canton, city or commune, was the original, and for many years, the only form of fire insurance in most European countries, and that such insurance still flourishes vigorously in those countries, although mutual and stock company insurance are now found in all of them. This slighting of the history and existence of state insurance can not be merely accidental because it is the most fundamental and striking fact concerning the development of fire insurance in Europe on other phases of which subject there have been frequent and extended discus- sion in insurance books and periodicals in English. In order to attain an adequate account of state, municipal and other public fire insurance in Europe, I was obliged to go to books written in foreign languages. By doing this, I found a very complete treatment of the subject in the following books : 164 "Assurance Contre L' Incendie, Service Public, En Allemagne, Alglave (1901). "Les Assurances Contre L' Incendie Par L* Etat Ou Les Cantons, En Suisse & dans les Pays Scandinaves, Alglave (1902). "L' Assurance Contre L' Incendie par la Province Ou La Ville, en Autriche-Hongrie & Russie, Alglave (1904). "Das Deutsche Feuerversicheruiigswesen, Biederman, et al (1913)." The only explanation which occurs to me for this strange omis- sion which might be termed a "conspiracy of silence," is, that it might be embarrassing for the insurance companies and their supporters to have a knowledge of the facts in relation to public fire insurance in Europe become widespread. It is already a matter of common knowledge that the frre insurance rates in European countries are exceedingly low compared with those in the Unit;ed States. It is probable that the companies realize that the assured would believe that there was some connection between public insurance and low rates. A brief study of the subject renders such a conclusion very probable, and I am convinced that public irlsurance is the chief cause of the very great difference in rates between European countries and the United States. I will give a discussion of the details of this topic later, after a few words about fire insurance in general. ANCIENT TIMES. There is no trace of fire insurance, as now conducted, in any of the ancient civilizations, either of Asia or Europe. It appears to have been unknown even to the Romans, although among them there was an analogous form of maritime contract which, however, only amounted to a simple bet on the safe arrival of a ship. Among the reasons given for the absence of insurance in ancient times are these : That there were no reliable statistics by which charges for insurance could be computed, and that persons then engaged in commerce were usually very wealthy or very poor. For the first class a disaster would not destroy their entire resources, so that insurance was not indispensable to them. For the second class, the payment of a premium was practically impossible. For the origin of fire insurance, therefore, we need only go back to Middle Ages when we find, in the ninth century in England, and later in other countries, certain organizations or associations of mer- chants and artisans. These had different names in different countries, but are usually grouped under the term, "Guilds." At first they were social and charitable in character, as well as for the promotion of the material interest of their members. Among: the latter functions was the relievine of distress of members, caused by various casualties, among which were losses by fire. Usually all the members paid an entrance fee, as well as periodical dues, which were preserved as a fund for these ourDOses. After the eleventh century the Guilds became more specificallv industrial and professional in character, and their insurance functions were assumed in Teutonic countries by "Brand- gilden," which were primitive mutual fire insurance associations. These 165 also existed in England, but died out there before the great London fire. GERMANY. The Brandgilden were succeeded in Germany by public insurance institutions, generally known as "Feuersocietaten." The first was that of Hamburg, founded in 1677, followed by one in 1706, for Berlin. This was later divided, one section being for insuring city property, and the other for country property. During the eighteenth century, numerous similar public fire institutions were organized in all the provinces now comprised in the German Empire, and most are in existence to-day, although some have been subject to modification, usually by being united with other similar institutions. There were in 1913, in operation, 49 public fire insurance institu- tions in the various parts of. the present German Empire. A full and authoritative account of the organization and operation of these insti- tutions is to be found in "Das Deutsche Feuerversicherungswesen," mentioned above. Some of these are restricted in their field of action to one city ; some to a single province, and some extend over a whole kingdom. For a long time, fire insurance was a monopoly of the state institutions, at least as regards real property, but since 1861 this monopoly has been largely withdrawn and most state and municipal institutions have to compete with private companies. In Germany there has also been an extensive development of mutuals, so that three types of fire insurance are all in operation in Germany. AUSTRIA-HUNGARY. Fire insurance history in Austria- Hungary is similar to that of Germany. We find state institutions, mutuals and stock companies. In Austria, also, fire insurance originated in small local associations, of which several have been in existence since 1710. Numerous other mutuals have since been organized and still operate, fhere are now four state institutions in Austria, and eight stock companies. SWITZERLAND. In Switzerland, fire insurance is of more recent origin. It began as a form of private insurance, but this was abandoned for public insurance by the Canton. This change of policy commenced in 1805 with the Canton of Argovie. In 1841 there were seventeen Cantonal institutions for insuring buildings, of which the larger part were com- pulsory. Many of the Cantons took up fire insurance in order to fight the combination of private societies, and, above all, of the foreign societies which exacted excessive rates. .Later there vyere Cantonal institutions for insuring movable property. In 1897 there were eighteen Cantonal institutions for insuring buildings, and two for insuring movable property. There were, also, at that time, in Switzer- land, five mutual societies and eighteen stock companies. DENMARK. In Denmark, at the end of the seventeenth century, there existed a law which obliged the commune to reconstruct, free of charge, build- ings destroyed by fire. In 1714 there was founded in Seeland a free 166 mutual society for insuring church structures and schools. This exam- ple was rapidly followed and mutuals were formed for the purpose ol insuring middle-class houses and farms. The obligations of these mutuals, however, became burdensome, and in 1735 the government intervened and created an institution for compulsory insurance in the cities of the province, and, in 1761, an institution was founded which extended its action throughout the whole territory, except Copenhagen. For Copenhagen a communal institution had been established in 1731, but with insurance optional; a great fire in 1795, however, caused insurance to be made obligatory, and a fixed sum was collected for fire prevention purposes. Prior to this time, fire insurance had been carried on by local associations known as Brandgilden, but a state institution for this purpose was organized in 1792. Since that time, in addition to the continued existence of local associations, we find mutuals for the insuring of movable property. In addition to the above public and mutual institutions, stock companies, also, at present conduct fire insurance in Denmark. In Iceland, in the thirteenth century, we find an institution under the name of "Repps" for insuring against loss of cattle, and against loss of other property by fire. SWEDEN. In Sweden, at the end of the seventeenth century, several small associations were in existence, which collected dues for the purpose of relieving against disasters by fire, storm and flood. These were succeeded by the formation of a multitude of small free societies, some extending only throughout one commune, and the others further. Those owners affiliated with one of these associations were exonerated from paying the regular public fire tax collected in each "Harad." The fire tax for insurance in "Harads" have ceased, being replaced by a public institution in Stockholm for insurance of real property, which exists to-day.. Since 1829, there has-been a special institution for insuring country buildings. Stock fire insurance also exists in Sweden, there being five companies in 1897. NORWAY. The development of insurance in Norway has been very similar to that in Sweden. In 1767 a state insurance institution, managed by the government, was created, which insured throughout the kingdom. Insurance was' at first obligatory for all real property. Christiania, which had possessed, since 1753, a municipal fire insurance institution, was soon relieved of obligation to insure in the state institution. This lasted till 1827, since which time Christiania has also been insured in the state institution. Later the institution was divided into two parts, one for town risks and the other for rural risks. Since 1883 several stock companies have been formed foi: insuring movable property, for maritime insurance, also forestry insurance. RUSSIA. In Russia the beginning of insurance is stated to have been in 1786, when an Imperial bank for making insurance was organized. Various other insurance plans have since been in operation. In June, 167 1864, an imperial manifesto established provincial institutions for fire insurance which were compulsory upon dwelling houses not already insured in private companies, but insurance was optional for other real property. These institutions were under the supervision of the governmental head of each province. These institutions now exist in most of the provinces. There are in operation also many mutual associations and several joint stock companies. NEW ZEALAND. The latest instance of the inauguration of a system of state fire insurance is in New Zealand, where a government institution for fire insurance was opened for business January 4, 1905. Although it began and has continued in operation against strong competition from mutuals and stock insurance companies, both domestic and foreign, it has been very successful, ^t the end of 1.912 — though New Zealand is a small country thinly populated — it carried insurance to the amount of £13,519,742 sterling. Its annual premium income has been as follows : "1905, £13,132; 1906, £20,962; 1907, £23,195; 1908, £26,657; 1909, £33,281; 1910, £40,552; 1911, £47,745; 1912, £54,380." (New Zealand Year Book, 1913, p. 706.) Out of these it has accumulated a reserve fund of £37,000 in government securities and also other funds amounting to £48,000. The interesting point is that, by reason of its establishment, the premium rates on mercantile risks have been reduced 10 per cent, and on dwellings, offices, etc., 33J^ per cent, and this reduction occurred not only in the premium rates of the state instituion, but in the stock company rates, in order to meet state competition, so that there has been an immense saving to the people of New Zealand. It is said : "The fire insurance department has saved to the people in the first year of its operation more than half a million dollars in premi- ums." — (Government Insurance in New Zealand, Independent, Vol. 61, p. 86.) The saving to the people has increased correspondingly in suc- ceeding years and now doubtless aggregates millions of dollars. All this has been accomplished without a dollar of expense to the tax- payer, all expenses having been paid out of the insurance business. STATE INSURANCE OLD AND WELL TRIED. This brief outline of the history and present condition of insur- ance in these important European countries shows that state fire insurance, instead of being a new and untried experiment, is the oldest form of insurance, and still benefits the people of these countries, or it would have been long ago discarded. This benefit comes not only from the low rates at which state insurance is effected, but also from the fact that it compels the stock companies to do their business at similar low rates in order to get business, instead of leaving them free to exact such rates as they please, as in the United States. Another benefit is that the fact that the state is engaged in the fire insurance business has caused the enactment of strict laws for the prevention of fires, the prohibition of overinsurance, and the punishment of criminal 168 incendiaries, as well as those who cause fires by gross carelessness. It is to these factors mainly that the very much smaller fire waste in European countries is to be attributed, rather than the excuse alleged by the insurance companies — ^the smaller use of wood in buildings. The increased risk from larger use of wood in construction is probably offset by the superior fire fighting facilities in American cities. The most important cause of the immensely lower fire insurance rates in Europe is the existence there of state fire insurance institutions. ENGLAND. In England the early local fire insurance associations seem to have disappeared without causing the inauguration of any form of state fire insurance, such as occurred in most European countries. In 1609, a project was brought out for insuring houses against fires in return for a fixed premium. It was vigorous^ discussed, but religious scruples prevented its adoption. Fire, said the opponents, is the work of God, like other scourges which afflict humanity, therefore, you can not, without sin, put obstacles in the way of the Divine Will by sup- pressing through the payment of an indemnity, the chastisement which is intended to be inflicted on certain persons. The project failed, whether for these reasons or othfers is not recorded. In 1666 occurred the great fire of London which was relatively the most destructive in the world, over three-fourths of the buildings in the city being destroyed. This caused the subject of fire insurance to be again taken up, and, in the absence of any form of local or mutual insurance, the form of insurance by stock companies was adopted, the first being organized in 1680. In 1681 an attempt was made to have fire insurance carried on by the municipality of London, but owing to different causes, among which was the vigorous hostility of the previous private company, the city abandoned the enterprise, and, thereafter, fire insurance in England, followed by the United States, has since been carried on solely by joint stock companies, and later by mutuals, without any state institutions whatever being created for this purpose. The course of insurance development in France was similar to that in England, and it is with the history of fire insur- ance in these countries alone that the historical sketches printed in English have solely busied themselves, as I have above noted. UNITED STATES.. In the absence of state competition or regulation, the fire insur- ance business proved very profitable for corporations and a number were later organized for this purpose in England, and the United States. Here the first company was the Philadelphia Contribution- ship, organized in 1752, followed by a second in the same city, the Mutual Assurance, in 1786. The third was the Knickerboclcer Fire of New York. By the close of the century, 22 had been formed, among which were 8 mutuals. The first American companies to establish 'what is known as the "agency system" were the Hartford and the Aetna, incorporated in Connecticut. In no state was there at first any legal control or supervision over the business of fire insurance and it was conducted in such a manner 169 that the companies frequently failed, particularly whenever a great fire occurred, resulting in great loss to insurers. Consequently, after the New_ York conflagration in 1835, various states began to enact laws designed to compel the companies to so conduct their business and maintain such assets as would afford reasonable security to in- surers. COMBINATION BEGINS. Up to 1866, inthe United States, free competition had been the universal rule, but in that year the companies formed the "National Board of Fire Underwriters," organized for the purpose of fixing and maintaining fire insurance rates. Later on, for various causes, this particular function of this organization was abandoned, although its existence is still continued for other purposes. This, however, does not mean that companies abandoned their monopolistic practices and entered into free competition. The monopolistic features were simply relegated for more effective exercise to otiher organizations of smaller territorial jurisdiction. Those which affect Illinois at the present time are the Union, the Western Insurance Bureau, and the Chicago Board of Underwriters. ILLINOIS. Doubtless, fire insurance was affected in Illinois from an early date by the companies from other states or foreign nations, but orig- inally there was no State supervision of any kind, ' and there is no record remaining of their activities. Prior to the year 1869, Illinois insurance companies each received charters by special acts of the Legislature. The first company chartered was the Alton Marine and Fire, February 7, 1835, the office of which was at Lower Alton. This was followed by the Chicago Marine and Fire, January 13,. 1836, the office of which was at Chicago. After this there were usually a num- ber of companies which received charters at each Legislature and, up to 1869, 197 stock companies and 47 mutual companies had received special charters. None of these stock fire insurance companies are in existence to-day, but of the mutuals 12 are still doing business, which shows that the mutual principle in this State has been more enduring than the stock plan. The Chicago conflagration of 1871 is a landmark in insurance history in Illinois; It is stated that 335 American companies and six foreign companies suffered loss in this fire to an aggregate amount estimated at $88,634,122. (Chicago and the Great Conflagration, Colber & Chamberlain, 1871, p. 313.) But 57 of these companies failed, so that, according to the above authority, it was estimated that the insured would not receive more than thirty-five millions of insur- ance; this, however, was probably an overestimate. The report of the State Auditor for 1872 states that at that time $25,763,723.40 had been paid. SUPERVISION BEGINS. By acts of the Legislature, approved March 11 and 26, 1869, supervision of insurance companies doing business in the State was conferred upon the State Auditor. The first report of this office was 170 issued December 15, 1869, which gives a list of all the insurance com- panies then doing business in the State, as well as a list of those do- mestic companies which had ceased to do business prior to that time and of the foreign companies which had withdrawn from the' State. Following this were successive acts of the Legislature regulating fire insurance, which it is unnecessary to outline here. The Legislature, June 30, 1893, established a separate insurance department to be under the control of an insurance superintendent, and it is under this act that the department is now operated. FIRE PREMIUM A TAX. In the case of fire insurance as in all other poUtical, social and industrial institutions which have had a long period of historical de- velopment, subsequent study has discovered and formulated certain underlying principles or truths according to which its development and evolution has occurred, although its historical development .was not made by any formal or conscious appHcation of such principles. Perhaps the most important of these general principles is that fire insurance is essentially a tax for the purpose of spreading the loss caused by fire to certain unfortunate individuals among the members of the whole community and so lessening the burden of each. This conclusion as to the fundamental nature of fire insurance rates is admitted by practically all authors who have gone into the theory of the business, including those writing from the standpoint of the com- panies and their interests, as well as authorities not directly connected with the business. For instance, Mr. A. F. Dean, manager of the Western department of the Springfield Fire and Marine Insurance Company, says : "Fire, insurance rates are by their nature a tax." ( State Regula- tion Fire Insurance in the Light of Experience, A. F. Dean, Chicago, 1909, p. 7.) Another author: "Fire premiums are often described as in the nature of a tax, a fire insurance tax, which the various fire insurance companies are authorized to levy by virtue of the charters and licenses issued to them by the several states. This tax is paid by all property owners who carry fire insurance, and is simply a method of distributing the loss of one among a great many." (Business of Insurance, Dunham, Vol. 1, p. 60.) And: "The insurance on a burned building does not bring back the property that was destroyed; it simply equalizes the loss between all others whose property is insured." (Bulletin 418, U. S. Geological Survey, p. 12.) Fire insurance, then, being a tax, the next question which de- mands our consideration is the agency through which this tax is col- lected and disbursed. Most other taxes are collected and disbursed by governmental authority, either national, state or municipal, but the insurance tax in the United States is not. Here the collection and disbursement of the immense sums of money which equals two-thirds the entire income of the United States Government, is carried on 171 mostly by private corporations, but to some extent by Mutuals, Inter- Insurers and Lloyds. These corporations and other organizations are simply institutions for the purpose of collecting and administering funds paid by the policyholders for indemnity against loss by fire. Dean says : "There can be no intelligent understanding of the questions in- volved which overlooks the fact that the aggregate premiums collected by all the companies each year in the United States constitute a gen- eral fund, from which all losses and expenses are disbursed, the re- mainder, if any, being the average profit of all the companies. This fund, in its collection and disbursement as a whole, constitutes the activity known as fire insurance." (State Regulation Fire Insurance in the Light of Experience, A. F. Dean, Chicago, 1909, p. 7.) This being so, the important question at once arises as to whether or not the present agencies are the best and most economical for this purpose, so that the burden of taxation will ,be equitably distributed and will be as light, as possible. PREMIUM RATES. The most important thing about any tax is, first, the amount of it ; and, second, how it is apportioned among those who must pay the same. As noted above, I began early in 1914 to investigate this subject of the amount and apportionment of the fire insurance rates or tax in Illinois, and have already submitted to you a preliminary report, under date of May 6, 1914, on this subject. This report was prelim- inary in nature and not widely circulated, and I believe that a brief restatement of some of the information therein contained is desirable, and will follow this with new tables showing that, according to her individual experience, Illinois is entitled to a substantial reduction. The facts and figures given are entirely trustworthy, being taken from the schedules of rates published for and used by the companies themselves, , fixing the premiums charged on properties in these states. COMPARISON OF RATES IN CHICAGO AND OTHER LARGE WESTERN CITIES- ANNUAL DWELLING RATES. Brick, metal Brick, City. Class. roof, sliingle roof. Chicago IV2 -27 .30 Detroit 2 .20 .25 Cincinnati 1 .20 .25 Cleveland IV2 -20 .25 Milwaukee 1 .25 .25 St. Louis 1% .15 .20 State. Protected cities outside principal cities. Illinois -30 .35 Ohio -25 .30 Missouri -25 .30 Single Single frame.metal frame.shingle roof, de- roof, de- tached less tached less than 25 feet, than 25 feet. .67% .75 Detached less than 10 feet. Detached less than 10 feet. .30 .35 .25 .30 .35-40 .40-45 .35 .40 .30 .35 .35 .40 .30 .35 .32% .40 173 Note. — My attention has been called to some slight errors in the figures given above as they were originally published. These errors were chiefly in the St. Louis and Missouri rates. I give the correct figures above. A comparison of the correct figures with those originally published shows that the changes do not affect in the least the general situation that the Illinois rates are higher than the other rates quoted. In fact, some of the corrected figures are more favorable to my argument than the original figures. It has been urged also concerning Cleveland and Cincinnati, that these cities are each divided into several districts, and while the figures given are correct for the districts to which they apply, that the rates in some districts differ. Even if this is true, it does not affect my argument, for it still remains true that the Chicago rates given apply to the same kind and character of rislcs in Chicago as the Cleveland and Cincinnati rates given apply to these cities. The fact that all residences in Chicago are given a fiat rate by the companies, while Cleveland and Cincinnati are divided into districts having different rates, does not, in any sense, justify the higher Chicago rates. In reality. It is in itself, proof of the injustice of Chicago rates and that they are inequitable and discriminatory, because the good risk is charged the same as the bad risk. COMPARISON WITH NEW YORK. An even more striking showing is made by a comparison with rates in force in New York City, as follows : DWELLINGS. Brick. Metal roof. Contents. Frame. Contents. Chicago, 1 year .27 .27 .45-67% .45-67% Chicago, 3 years .54 .54 . 90-135 . 90-135 New York, 1 year .10 .16 .16 .20 New York, 3 years .25 ^ .40 .40 .50 FLATS. Brick. Uetal roof. Contents. Frame. Contents. Chicago, 1 year .36 .40 .45-67% .45-67% Chicago, 3 years .72 .80 .90-135 . .90-135 New York, 1 year .15 .20 .20 .24 New York, 3 years .37% .50 .50 .60 PRIVATE STABLES AND OUTBUILDINGS. Brick, stone, concrete, etc. Contents. Frame, etc. Contents. Chicago, 1 year .27-30 .27-30 .45-75 .45-75 New York, 1 year .20 .26 .32 .32 Practically every other building and property is separately rated by the Chicago Board of Underwriters so that direct comparisons are not easily made, but the above are typical examples of the exorbitant rates demanded from Chicago property owners. Omitting Chicago, the average charge in the large western cities for the brick dwelling with standard roof is 20 cents annual. Placing Chicago on this basis would cause a reduction of about 25 per cent in the premiums on this class. Similarly, the average charge for the frame dwelling with shingle roof is 35 cents annual. Placing Chicago on this basis would cause a reduction of about 50 per cent in the premiums on this class. . The rates for Chicago flats are obtained by adding to the brick dwelling basis 10 cents for a three-story flat, and 20 cents for a four- story flat. If these differentials were retained in connection with the reduced 20 cents basis, there would be a reduction in the premiums on this class of about 22J4 per cent. THE DEAN SCHEDULE. The Dean Schedule, named after its author, Mr. A. F. Dean, is a detailed classification purporting to make rates proportionate to the 173 fire hazard involved, on mercantile establishments, factories, etc. The rates at present exacted from the owners of all buildings and contents of these classes in Illinois are fixed by this schedule, as applied by the "Illinois Inspection Bureau," which is described later. Dean Schedule rates vary according to the basis tables which are used. The schedule is constructed so that the rates produced with the 100 table are twice those produced with a 50 table. DEAN SCHEDULE BASIS TABLES. Brick. Frame. Building. Contents. Building. Contents. Illinois, North 60 70 95 100 Illinois, South 70 70 95 100 Ohio, prior to 1914 50 70 90 95 Ohio, 1914 50 60 80 ' 80 Wisconsin 50 70 90 90 Kansas 60 70 95 95 Indiana, Missouri and Michigan.. 60 70 9'5 95 I recently received reliable information concerning rates in east- ern states from a well-informed insurance man, who formerly lived in Pennsylvania, and who recently made a trip East, during which he vis- ited at his old home in Pennsylvania, and also New York and New Jersey. During this visit he said he compared notes frequently with local insurance agents in the smaller towns and country districts of these states, and found that the rates on dwellings were usually about one-half of those in Illinois, and on other risks, while the difference was not so marked, still the rates were much below those on similar properties in Illinois. It appears from this tabulation that Ohio and Wisconsin have the lowest rates, and Illinois the highest. The selection of 'the general basis tables for a state is governed by two considerations, the existing level of rates when the schedule is first applied, and the level of the loss ratio for a long term of years. There is no reason for imposing the highest level of rates on Illinois, except the fact that there has been no legislation in this State to interfere with extortionate prac- tices. The loss ratios for 33 years, to wit: 1880 to 1913, inclusive, are: State. Loss ratio. Illinois ■. 50.5% Indiana 52.2% Michigan 52.3% . Missouri 59.0% Ohio 52.1% Wisconsin 50.4% It thus appears that Illinois has been the most profitable state of the group for a period of 33 years, except Wisconsin. The volume of premiums in Illinois is equal to that of Michigan, Missouri, and Indiana, combined, and exceeds that of Wisconsin and Ohio, com- bined. Moreover, taxation is least in Illinois and there are no anti- compact, anticoinsurahce and valued policy laws such as prevail in the other states. According to insurance logic, by reason of this exemp- tion from interference, the cost of operation should be the least iii Illinois, and rates the lowest. lU The following tabular comparison of rates was obtained by ap- plying the basis tables, coinsurance credits and term conditions to an example given on page 97a, of the Dean Schedule. RATES FOE BUILDING AND CONTENTS. Five story and Basement, Brick, Wholesale Dry Goods. Building. Contents. 1 Ypa,!" 5 YsSiiTS 1 YGsr Chicago, Central Dis., Class 1% . 66 ' 2 . 64 1.305 Chicago, outside Cent. Dis., Class 2 .70 2.80 1.25 Chicago, average .68 2.72 1.28 Cleveland, Class 1 .47 1.41 .91 Ohio, Class 2 .525 1.57 .96 Wisconsin, Class 2 .525 1.57 1.01 St. Louis, Class IVa .59 1.77 1.10 Danville, 111., Class 2 .63 1.89 1.13 SHOWING PEHOENTAGE REDUCTIONS OF DEAN SCHEDULE RATES NECESSARY TO PLACE CHICAGO ON THE SAME BASIS AS THE CITIES LISTED. 5-yr. building, l-yr. contents. Rate reduces. Rate reduces. Chicago equal to Cleveland, Class 1 50% 30% Chicago equal to Ohio, Class 2 44% 25% Chicago equal to Wisconsin, Class 2 44% 21% Chicago equal to St. Louis, Class 1% 35% 14% Chicago equal to Danville, 111., Class 2..: 30% 11% These percentages apply to all rates made in Chicago by the Dean Schedule. At this date, the Dean Schedule has not been applied in Chicago to the outlying small risks, but the rates in force upon these risks are apparently on a line with those that would be fixed by the Dean Schedule. The National Druggists' Fire Insurance Company reports that about two-thirds of its Illinois business is placed in Chicago, with very little in the downtown district. This company uniformly takeS 25 per cent off the board rate to fix its own rate. The experience in IlUnois on the premiums thus reduced shows a loss ratio of only 40 per cent, which, assuming that 60 per cent is a profitable loss ratio, the original rates could be reduced 45 per cent and still leave a fair margin of profit. The two Illinois companies which write small retailers and grocers throughout Illinois show loss ratios upon their total business since beginning of only 35 per cent. This indicates that there is a general practice of overcharging small dealers. While these special- ized companies are supposed to select business and therefore to show a better loss ratio than the board companies can obtain, it is still a fact that the rates upon this class can be reduced 25 per cent and show a profit for the average quality of business handled by the board com- panies. The Chicago rates estabUshed by the Dean Schedule were the climax of a series of increases, beginning with February, 1894. The admitted purpose of the Dean Schedule is to collect enough insurance premiums to pay the losses, expemes and a profit. To do so, this schedule makes varying rates on different properties, according to material, exposure, occupancy, construction and other factors, the aim being to make favorable allowance for conditions which tend to re- 175 duce fire losses and impose higher rates where conditions are unfa- vorable. This purpose is a good one, but injustices arise because these allowances and charges are not founded upon the only just and proper basis for making such differences: namely, the actual experience as to fire losses in the various classes into which property is subdivided in this schedule. "Practically the only light that is thrown upon the hazards in the fire insurance is that of experience, and furthermore the experience to be worth anything must not include one, but many similar cases." (Rep. N. Y. Com. 1910, p. 69.) "Fortunately there is one guide in this matter, the past ; otherwise the problem would be quite hopeless." (lb., p. 39.) The allowances and penalties are merely the estimates or guesses of Mr. Dean as to the imp(^rtance of these various factors. The fact that Mr. Dean is an experienced insurance man does not render his schedule perfect or even approximately so. His skill gives it some degree of excellence and makes his a schedule which accomplishes its main purpose — ^the securing of a satisfactory income for the com- panies. But Mr. Dean does not know, nor does any one else, whether or not the rates imposed upon different properties correctly represent the relative fire hazards. In addition to these inherent defects in the present schedule rating used in Illinois, there are possibilities of great injustices in its applica- tion to individual risks. A concrete example of this is furnished by the rating of a commercial building in a small Illinois city. The insur- ance on this was carried for many years by a prominent "combine" company agency, but finally the owner gave the insurance to another agency. The first agency then in some way procured a representative of the Illinois Inspection Bureau to make a resurvey of the building. He did this and purported to discover some previously undetected de- fect and nearly doubled the rate; conditions in the meantime being absolutely unchanged. This was favoritism in its most pernicious form and is possible at all times under the present system of schedule rating. Another remarkable example of the inequitable result of the schedule occurred at Rock Island. A large wpoden shed building was occupied as a lumber yard, and, while so used, the rate was $1.00. The use of this shed was changed from a lumber yard to a storage room for iron car wheels, which, of course, are absolutely unburnable and can not be injured by fire, but the Dean Schedule raised the rate on the building, as thus used, to $1.40. ILLINOIS EXPERIENCE. From the records of this department (made up from the sworn statements of the stock companies), I have compiled tables, covering the fire business in Illinois. These records are full and complete since the year 1869. 1?6 EXPERIENCE TOR TWENTY YEARS. Per cent of losses to Premiums premiums Years— Period. received. Losses paid, (loss ratio). 1909-1913, 5 years $115,436,149 $58,424,018 50.6 1904-1913, 10 years 220,729,045 106,105,147 48. 1899-1913, 15 years 296,632,964 146,348,954 49.3 18&4-1913, 20 years 356,749,351 179,374,010 50.3 Taking the entire experience of stock companies on Illinois busi- ness from 1869 to 1913, inclusive (45 years), and including the Chi- cago conflagration (1871), the loss ratio is only 2 per cent above that of the last twenty years, or the last five years. These figures reveal the fact that Illinois citizens have paid the companies approximately $2 in premiums for every $1 returned for fire losses, uniformly for over twenty years. In making up the above table, it was necessary, on account of the arrangement of the reports, to compute the experience separately of the Illinois companies, companies of other states, and United States branches of foreign companies, and one result obtained which it is interesting to note is that Illinois companies, with less than 10 per cent of the business of companies of other states, show as level a loss ratio. This is also true of the companies of foreign nations, doing business in Illinois, which transact about 40 per cent of the business. The loss ratios of all companies combined, for the respective five- year periods of the past twenty years, are as follows : Period. Loss ratio. Period. Loss ratio. 1894-1898 54.9% 1904-1908 45.2% 1899-1903 53. % 1909-1913 50.6% The companies contend that a reasonable loss ratio on business in cities subject to conflagration hazard, is 55 per cent, and on prop- erty not subject to this hazard, 60 per cent. Therefore, even figuring on a basis that the companies regard as "satisfactory," Illinois is entitled to a substantial reduction in rates. The companies, however, claim that because there has been a slight raise in the loss ratio when calculated on all the insurance written in the State during the past five years, and a slight decrease in the average rate for the same period they should not, therefore, now be asked to reduce rates. This position might be well founded if the rates at the beginning of this period had been equitable or approximately so, but this is not true. Furthermore, an examination of the details of fire insurance sta- tistics during this period, 1909 to 1913, inclusive, shows that in the class containing dwelling houses, flats, etc., with their contents, which is the class comprising the largest number of risks, and is also the class in which there is practically no competition, the trend has been just the opposite ; rates have remained practically stationary, while the loss ratio has declined, as shown in the following table taken from the companies' annual report to my department. 177 DWELLINGS AND CONTENTS. Rates per $100 Per cent of loss Year. • Premiums rec'd. risks written. (loss ratio). 1909 $5,641,292 .95 46 1910 6,059,113 1.01 43 1911 6,265,195 .94 48 1912 6,516,806 .95 48 1913 6,604,524 .95 43 The cause of the small increase of the loss ratio on the totals for all the property in the State, and the slight decline in the average rate on the same, is found in the risks in which there is competition from mutuals and inter-insurers, which has caused a lowering of rates in certain classes, and, of course, a corresponding raise in the loss ratio. This can only be imperfectly shown from existing statistics because these have not been subdivided into enough classes. A clear indication of this trend, however, is giVen by the statistics of the classes "Special Hazards" and "All Other Hazards," covering the same five years' experience. "Special Hazards" and "All Other Hazards," are classes of business in which there is much competition between the stock com- panies, mutuals and inter-insurers, and it is noticeable that the average rates have declined, while the loss ratios have rapidly increased. The following tables show the statistics of "Special Hazards" and "All Other Hazards" : SPECIAL HAZARDS. Rates per $100 Per cent of loss Year. Premiums rec'd. rdsks written. (loss ratio). 1909 $5,628,115 1.33 41 1910 5,685,941 1.27 58 1911 6,246,482 1.19 57 1912 5,689,066 1.25 60 1913 5,544,627 1.23 69 ALL OTHER HAZARDS. Rates per $100 Per cent of loss Year. Premiums rec'd. risks written. (Iqss ratio). 1909 $2,182,299 1.05 39 1910 '.. 2,927,523 1.04 40 1911 3,167,251 .99 44 1912 3,617,707 .98 45 1913 4,150,089 .83 57 The class, "Special Hazards," is composed of risks rated indi- vidually. The class, "All Other Hazards," comprises everything not included in dwellings, mercantile risks and special hazards. The trend of rates and loss ratios in each class shows clearly wherein the cause for the decrease in rate and raise in loss ratio lies; namely, compe- tition. A few months ago, when the present investigation was beginning, we find open admissions that Illinois rates are not entirely equitable. The Market World and Chronicle, an insurance journal of New York, in its June 13, 1914, issue, made the following statement : "At present the companies are compiling statistics to show the reasonableness of Illinois rates in general, aside from dwelling rates. They hope to satisfy the administration that most of the rates are fair — 12PS 178 and that they are going to do the fair thing regarding dweUing rates, by applying the dweUing house schedule as sooq as it is prepared. A committee from several of the big organizations has been working on this schedule for a number of months. It is said it ought to be com- pleted by now, but it is not." It is noticeable that no defense is offered as a justification for present dwelling rates, and, since the promised reduction is not yet in force, it is evident that the companies had no intention of granting relief even on this class. The same publication, in its May 16, 1914, issue, expressed this opinion : "Certain it is that the companies are in an untenable position as regards preferred rates." Rough Notes, an insurance journal published at Indianapolis, on May 31, 1914, expressed the same opinion: "There is more or less uneasiness in local circles in Chicago as to whether the State Insurance Department will not take some action that may lead to reduction in rates in the city. It is known that a large number of underwriters feel that preferred rates in Chicago can well be reduced, and that there is no defense for keeping the rates on this class higher in Chicago than anywhere else in the State." Similar overcharges oppress the insuring public in other states and have received the attention of various insurance departments. As the result of an investigation which he has recently made. Commis- sioner of Insurance Herman L. Ekern, of Wisconsin, has arrived at conclusions which are well summarized in a recently issued abstract of his forthcoming report on this subject. Commissioner Ekern was chairman of the Committee on Rates of the National Convention of Insurance Commissioners and his profound study of the subject ren- ders what he says of such importance that I attach the abstract hereto as an apjjendix and desire to call your special attention to the same, and particularly to his final recommendation: "Laws for inquiry into and the regulation of fire insurance rates are absolutely necessary. This is one of the big problems in Wis- consin." I could extend these comparisons of rates and discussion almost indefinitely, but do not believe this necessary or desirable, for I have given enough examples to show clearly that great inequalities and injustices are being inflicted on lUinois policyholders by exorbitant and discriminatory rates, fixed and maintained by the "combines." In order to understand how these wrongs may be removed, we must con- sider briefly the correct principles of fire insurance ratemaking. RATEMAKING. The only just basis for ratemaking is: (1) To have a scientific and detailed classification made of all risks in the State, putting in the same class all those having ap- proximately the same fire hazard. (2) To collect all the experience possible as to fire losses on each of the different classes and on the basis of this fix a fair rate. 179 The classification and especially the rate should be subject to niodification from time to time as the further accumulation of expe- rience might indicate. This can only be done by the authority of the State. The individual insurance companies are absolutely help- less to carry out such an undertaking, even if they honestly desired so to do. Neither can it be done by a "combine" of the com- panies or through cooperative action of the companies because they have no authority to obtain information of the experience of all the companies upon which the rates must be based. The State, of Illinois is large enough to give trustworthy aver- ages for the purpose of fixing insurance rates for practically all classes of property in the State. It might, however, be found de- sirable in the case of a few classes containing only a small number of risks to supplement Illinois experience by that of similar risks under similar conditions in other states. As a preliminary attempt in securing fire loss experience, I have prepared a set of questions to elicit such information on certain classes of Illinois property, each of which contain large numbers of risks. These, if correctly and honestly answered by the companies, will furnish sufficient data for a preliminary schedule of rates and upon this a complete system can be worked out as further experience accumulates for application in a reformed method of fire insurance which I will describe later. Illinois is so situated that we do not suffer from many extra hazards that increase fire losses in other states. We are outside of the earthquake zone, free from prevailing high winds, and forest fires, hence, by including other states with Illinois in arriving at insurance rates, the Illinois rates are influenced unfavorably. The people of Illinois can themselves work' out a trustworthy system of insurance, which will not only protect them against monopolies, but procure fire insurance at much more reasonable rates. In the annual reports filed by the companies all losses of every kind and character are lumped together and compared with the premium income from all classes of property to show the result of the year's experience. By this method the companies are able to conceal the classes on which rates are exorbitant ; and the classes in which overinsurance is permitted, with its consequent result of enormous arson and careless fire losses. It also permits them to conceal the losses on classes on which temporary lower rates are made to drive out independent companies, which losses must be offset by excessive profits on other classes. If every class of business was rated according to its own past experience and had to be self-supporting in order to make the aggregate business profit- able, the companies w'ould of necessity immediately eliminate the bad risk. FORMER POSITION OF COMPANIES AS TO '^EXPERIENCE.'' The proper basis for ratemaking has long been the subject of discussion and agitation. In the past the companies have con- tended that ratemaking was an occult thing, which could not be understood by anyone who had not been engaged in the business 180 for a lifetime ; "experience" — that is, the records of losses, was no guide whatever in estimating future losses. This position was main- tained because the companies desired to avoid the compilation of fire insurance statistics, and thus conceal the facts from the public. The selfishness and fallacy of this position has, however, been so clearly demonstrated in late years that the "combine" has been forced to abandon it, and in the fall of 1912, as a result of pressure brought to bear by the National Convention of Insurance Commis- sioners, an "actuarial committee" of the "combine" was appointed. At the April, 1914, meeting of the insurance commissioners in Chi- cago, the committee made a report in which it declared that past experience was no guide to future ratemaking. This report was severely scored by certain insurance commissioners and the com- mittee promised to pursue the subject further and make another report. Under date of September 9, 1914, this committee issued a report styled "A Standard Classification" of occupancy hazards and loss report forms for use in ascertaining fire cost. COMPANIES AND CLASSIFICATION. A very clear expression of the companies' position is con- tained in the following quotation from the October, 1914, issue of the Western Underwriter, an insurance journal, in discussing this "standard classification." "Doubtless much opposition will arise to a.n acknowledgment of the value of classification. Those who are contending against the move feel that underwriters will be stultifying themselves and turning back the pendulum in yielding to the pressure that may be exercised by some states and commissioners for classification. "These men argue that the companies should undertake to point out the fallacy of trying to use classified experience as a basis or guide in ratemaking and converting the authorities to a true understanding." From an examination of this report it does not appear to be made in good faith, but is a continuation of the "combine's" policy of concealment. For instance, under "nonhazardous," there are 13 classes of buildings and contents, and among the largest classes included are: 1- 2 — Barns, and stables, private (other than farms). 3- 4 — Churches and chapels. 9-10 — Dwellings, without barns (excluding classes 11-16, in- clusive; these classes are "palatial dwellings," "summer or winter only, dwellings" and "farm dwellings"). 15-16 — Dwellings occupied for farming purposes. 17-18 — Farm barns and other outbuildings occupied for farm- ing purposes. All kinds of buildings of these various classes are lumped to- gether without regard to material or location, except that in a 181 prefactory note "for complete designation of classes, there is to be added to the class number — X for Fireproof. U for Unprotected. Y for Brick. P for Protected. Z for Frame. S for Sprinklered." A schedule based on such a classification and experience accu- mulated thereon would be unjust and inequitable. There is a great difference in the fire hazard of buildings having shingle roofs and buildings having slate, tile, metal or similar roofs. Assuming that, by "unprotected" and "protected," the distinction is made between buildings located in cities with fire departments and those where there are no fire departments, this distinction is wholly inadequate. The "combine's" own Illinois Inspection Bureau, for rating pur- poses, classifies cities with respect to the fire protection into eight classes, and there certainly should be a distinction between the risk on a building in the city having such a fire department as that of Chicago, and that of a village with a hand fire hose cart. The loss experience is accumulated for ratemaking purposes, consequently, it should be accumulated for each class for which separate rates are made. A large part of the population of the State lives in cities and heavy taxes are paid for the maintenance of fire departments. These are effective and furnish great protec- tion, particularly the cities of the first, second and third clsases, and property owners therein are entitled to have the experience in these cities compiled separately and if, as is certainly the case, there is a difference in the fire loss, they are entitled to a corre- sponding reduction in rates as compensation for the taxation which they bear to support the fire depatments. Furthermore, this classification lumps together all dwellings, from the dilapidated tenement shack to a mansion. It is unjust to compel the careful home-owners of the middle class to pay rates justified by the tenement fire hazard. The committee was very careful to provide that only "amounts written" and losses" should be reported, and that nothing should be said about premiums collected. What reason could there be but a desire to conceal the loss ratio, which shows whether rates are excessive or not? PROOF THAT REDUCTION IN RATES IS POSSIBLE. Some indication of the reductions which are possible in insurance cost is afforded by the well conducted mutuals and inter-insurers. In these cooperative organizations every care is taken to effect insurance only on the property of careful and honest owners. Provision is also made by frequent inspection, and otherwise, to see that the insured property is kept in such condition as to reduce the fire hazard to the minimum. Usually a sprinkler system is required. By such means the cost of insurance has been reduced to one-fourth to one-eighth, and even one-tenth of the stock company rates. Another proof of the reduction possible in insurance rates is afforded by the rates in force in foreign countries. 182 FIRE INSURANCE PREMIUM RATES IN EUROPE. Germany. When we come to examine into the fire insurance premium rates in European countries, we find them extraordinarily low. According to the absolutely reliable authority mentioned above (Das Deutsche Feuerversicherungswesen, Biederman, et al., 1913, Vol. 2, p. 559), the average premium rate for the public (state, provincial, city, etc.) insurance institutions throughout the entire German Empire for 1911 was 13.4 cents per $100, and for the period of five years (1907 to 1911, inclusive), the average rate was 12.9 cents per $100.^ This is approxi- mately one-ninth of the average rate in the United States, which for these periods were 106.1 cents per $100, and 110.1 cents per $100, respectively (Spectator Year Book, 1914, p. 420). In 1911, these German state insurance institutions returned, as losses paid to the premium payers, 84.3 per cent of the amounts collected from them, and, at the same time, added to their reserve 2,292,113 marks. Conse- quently, the entire expense of administration was only 13 per cent. For the 5-year period, 1907 to 1911, calculated in the same way, the expense of administration was 13.7 per cent. In the state insurance, the surplus belongs to the policyholders, but in the stock company insurance, the surplus belongs to the stockholders, and is entirely lost to the policyholders. These are strikingly different figures from the average of about 45 per cent expense and profit in American stock company insurance. Szvitzerland. In Switzerland, similarly low rates prevail. The latest year for which figures are available is 1899 (Assurance Contre L' Incendie, par L'Etat ou les Cantons, en Suisse & dans les Pays Scandinaves, Alglave, 1902, p. 363), in which the sum insured was 6,320,561,515 francs, and the premium receipts were 6,858,998 francs, so that the preinium rate in American money would amount to 10.1 cents per $100. In the same year, 4,061,088 francs were returned to the policyholders for fire losses, so that the loss ratio was 59.2 per cent. The amount of the surplus for this year is not given, so that it is impossible to calculate what the expense percentage was in Switzerland for this year. For the year 1897, the premium rate calculated in American money was 11.5 cents per $100, and the loss ratio was 56.4 per cent. For the same reason as in the previous year, it is impossible to get the actual expense percentage. For the United States, premium rates are not available for these years separately, but for the period 1891 to 1900, the average rate was 103.7 cents per $100. (Spectator Year Book, 1914, p. 420.) Norway. In Norway the average state insurance premium in the rural dis- tricts for the period of 1895 to 1897, inclusive, was 6.9 cents per $100. . ..X'^^'^r W^ \°^ T^*^ ^^.f^^} "Jecreasing;. According to an article by Leo Iranyi. in "Der National Oekonom," Vienna, translated in the Marliet World and Chronicle April 10, 1915, page 480, the average rate of public insurance in the Gteiman^- pire for the year 1913 was 12.8 cents per JIOO. t^rman Jfim 183 In the cities, 13.8 cents per $100. Taking both the city and country districts together, the average premium for this period was 11.7 cents per $100. The rate average in the United States for period including these years was 103.7 cents per $100. FIRE PREVENTION METHODS NOT IN GOOD FAITH FAVORED BY COMPANIES. The "combine" companies are reluctant to inform a property owner of the reduction in rates to which he might be entitled by the installation of sprinkler systems or other fire preventive devices, because the installation of such improvements would bring the build- ings within classes which are much sought after by high class mutuals and inter-insurers. So long as a risk is in hazardous classes the "combine" has a monopoly, and, so long as the "combine" can charge any rate it sees fit, it is not seriously interested in reducing the amount of losses. A striking example of the result to be obtained by the dissemina- tion of such knowledge is afforded in Texas, where the present state law requires that a detailed statement of all the different items, penal- ties, credits, etc., which go to make up the final insurance rate on any property, must be placed in the policy. This has given every insurer information concerning the unfavorable factors which cause his rate to be high, and, in very many cases, he has improved his property, and thus secured a rerating at lower figures. This has resulted in a great improvement in a large part of the insured property in the state, which not only benefits the property so improved, but also lessens the hazards to adjoining properties. COilRCION BY THE "COMBINE." It has been the practice of the "combine" whenever the question of state ratemaking has been up, to threaten to withdraw from any state attempting such action. They actually put their threats into effect in Missouri and Kentucky, and so coerced, to some extent, the govern- ment of those states. This was done by the concerted action of the companies and shows the extent and power of the agreement existing between the members of the "combine." The action in these states, however, had a two-fold purpose. The companies, fearing the effects of the anticipated decision of the Supreme Court of the United States in the Kansas rate case, decided to make examples of these states as a damper to agitation for relief in other states. This plan has been carried out faithfully and during the past year it has been almost impossible to find a single insurance periodical without some reference to the terrible examples of Kentucky and Missouri. These threats have already been made in relation to the movement in Illinois for an equalization and readjustment of insurance rates. In order that the selfish and illegitimate motives of the companies behind this agitation may be understood by the citizens of Illinois, it will be necessary to give a short account of the conduct of the companies in this con- nection. 184 TACTICS OF THE COMPANIES IN DEALING WITH THIS DEPARTMENT. The fire insurance companies have made repeated claims that un- favorable commercial conditions, caused by the present European war, entitled them to immunity from prosecution for violating the anti- monopoly laws. Their position is founded on the allegation that fire insurance is the basis of commercial credit. If this is true, it is cer- tainly time that some action be taken to see that commercial credit does not remain dependent upon the monopolistic "combine." An unsigned circular was distributed at a recent meeting of the Illinois Association of Bankers in Chicago, making such charges. The circular was a ver- batim copy of an article previously appearing in the Insurance Post of Chicago, an insurance journal, edited by T. R. Weddell, ofHcial pub- licity agent for the "Union" and "Western Insurance Bureau," the two "combines" now attacked by an antitrust suit. It is evident that the fire interests preferred to do their fighting in this manner, rather than by any direct and open statements. A brief resume of the proceedings taken is a complete answer to all such charges. The investigation of fire insurance conditions in Illinois was begun in March of, this year, and my preliminary report was filed with you on May 6. On June 16, we gave the companies a joint hearing, at which time they agreed to file their answer and state their position in regard to the demands made upon them in my report, within thirty days. This was long before commercial conditions were disturbed by the war, and the companies had ample time to dispose of the entire matter weeks before the outbreak of hostilities. No answer was filed but, on July 29, I gave written notice to the companies to file their long overdue answer by August 10 ; on this date the companies sent a representative to you and pleaded for another extension, and they were granted this to August 30. However, no answer was then filed or ever filed by the cranpanies, nor did they assign any reason for their failure to do so. Because of this failure, I filed an antimonopoly suit on August 37, 1914, against the "combine" companies in accordance with my report of May 6, 1914, (p. 5), in which I said that, unless the organizations and methods of the com- panies were reformed "in such a manner as not to be in violation of our laws, proceedings should at once be brought against them." The com- panies' claim is false that this antimonopoly suit is an unfair prosecu- tion, coming without warning when business conditions were disturbed by the war. After the commencement of this suit; however, the "com bine" companies continued their dilatory tactics, and on November 5 they sent their representative to Your Excellency with a proposal that if I should agree, as complainant in said suits, to a postponement of the argument on the pending demurrer therein from November 7 to December 5, the companies would file with you an answer to my said report of May 6, within one week from that date, and that representa- tives of the companies would meet at your office on November 16, 1914, for the purpose of conferring with us in reference to the allegations in my said preliminary report, and also with regard to proposed legisla- tion in relation to the regulation of fire insurance rates and other fire insurance matters in Illinois. 185 After wating until the representative of said companies had re- ceived, as he claimed, explicit ratification of his proposal from his prin- cipals, he returned to you and on November 6, 1914, said agreement was completed, and according to your directions, the postponement of the argument of said demurrer entered by agreement inHhe records of the court. Nevertheless, neither did the companies file their answer as promised, nor did they or their representatives appear on November 16 at your office for said conference, nor was any excuse or explanation given for not doing so. I next, on November 19, 1914, filed in court a motion, supported by an affidavit, setting forth the facts outlined above, to set aside the postponement of argument on demurrer. The course of the companies in this connection is unpardonable and a plain effort to avoid an issue upon the charge that they have been exacting unrea- sonably high rates agreed upon in their "combine." The insurance companies complain of my*investigation and say that I should not pre- sent these matters' to the courts and to the pubhc. If I am not right in my version, I ask the judgment of the courts and the public against me, and, if I am right, I ask that both sustain me. UNDERWRITER ANNEX LITIGATION. The entire lack of good faith, upon the part of the companies in their resistance of the efforts of public officials to enforce the laws, is also shovra by their conduct in the present "underwriters' agency" liti- gation now pending in the United States Court of the Southern Illinois District. In April, 1914, a written complaint was presented to me in regard to companies maintaining "annexes" which issue "underwriters" poli- cies. This is a plan which had grown up largely within the past ten years, by which risks were insured by unincorporated concerns called "underwriters agencies," but the policy was issued over the name of some regularly licensed insurance company. After some examination of the subject and appreciating the importance of the issue, I gave notice of a public hearing, to be held on June 1, and invited all parties interested to be present. At this hearing the companies participating in this practice were represented by counsel, and some of the most prominent of the proprietors of "underwriters' agencies," and also rep- resentatives of the local agents of Illinois. Immediately after tins hearing, representatives of the "underwriters" companies, after a con- ference in Chicago, at once sent 54 special agents throughout the State, dividing the State into 17 districts. These special agents callea upon every local insurance agent and urgently solicited him to write a letter to the Insurance Superintendent, protesting against any ruling contrary to the "underwriter" policy scheme. They furnished such agents as they could induce to use them, letters already written to be copied upon the agents' own stationery. In this way they attempted to make it appear that the agents were strongly opposed to any ruling against "underwriters agencies," when, in fact, the local agents as a body were and are opposed to the "underwriters" policy scheme. This is shown by the subsequent action of the National Association of Local Insur- ance Agents at Minneapolis, August 17, 1914, which passed a resolution 186 commending my ruling, as did also the State Association of Local In- surance Agents at their annual meeting in Springfield, September, 1914. After the hearing I took the matter under consideration and, on June 16, made a ruling which contained a full outline of the considera- tions which led me to decide against the practice of issuing the so-called "underwriters" policies. This ruling was printed and sent to all fire companies licensed in this State. In a letter, which accompanied the ruling, I allowed the companies until July 10 to indicate whether or not they were willing to comply therewith. The nature of the action con- templated was clearly indicated in the ruling itself in which I said : "I shall direct that proper proceedings be instituted in the courts of this State against all companies issuing such policies, to compel them to conform with the laws of this State." This course was adopted by rpe with a sincere desire to settle the "underwriter" question without any disturbance to the business. This considerate action should have been appreciated and recipro- cated by the companies. Instead, however, the "underwriter" com- panies hastily combined, concocted a sworn bill containing absolutely false allegations, and rushed with it into the United States courts be- fore July 10 to prevent me from enforcing my ruling. These com- panies, by thus forcing the controversy into the United States courts, said plainer than words that they have no faith in the State courts of Illinois. Insurance companies of other states do business in Illinois by permission only. They are business gfuests of our commonwealth. No greater affront could be offered the State of lUinois than this action for an injunction against a State official to prevent the enforcement of a State law by a State court. Their conduct is a contemptuous viola- tion of the spirit of the statutes which imperatively require the Insur- ance Superintendent to immediately revoke the license of any foreign company which removes a suit brought against it from a State court to a Federal court, and, also, an example of the tactics of this monopoly when confronted with regulation in any form. INSURANCE JOURNALS. The numerous insurance journals well scattered over the country valiantly uphold the companies in every fight against reform. These trade papers secure their income almost entirely from company adver- tising and derive their ideas from the source of their income. They are widely distributed among insurance agents, and their editors are past masters at manipulating facts and figures in the interest of the com- panies. A quotation or two from these publications will show the very evident use that is made of them by the "combine." The Insurance Post, of Chicago, III, an insurance journal edited by T. R. Weddell, official publicity manager of the Western Insurance Bureau, and the Union, in the August 1, 1914, issue, in discussing the investigation being made, makes this threat: "In connection with the activities of Insurance Commissioner Potts, of Illinois, in the matters of rates, annexes, etc., the fact is re- called that Mr. Potts has not yet been confirmed in his position by the Senate. He is an interim appointee, and in case of a political upheaval, 187 such as is quite probable in Illinois this winter, it is possible that he may fail of confirmation when his name is submitted to the Senate under the laws, when that body meets. In the meantime the dispo- sition of the insurance men is to let Mr. Potts alone, so long as he lets them alone, but to serve notice on him that every move he under- takes which is not justified by law will be fought to a finish. This includes his demand for a reduction in rates, which is held not to be a matter within his authority." Within a week (issue of August 6), The United States Review, another insurance journal, published in Philadelphia, made the same threat of the political intentions of the fire interests: "It is said, notwithstanding that he (Potts), has held his present office for some time, that he has not yet been confirmed in his position .by the Illinois Senate; also that he is an interim appointee, and that in the event of a political upheaval in the State during the coming winter, which is thought to be highly probable, he may fail of con- firmation when the Legislature then meets. Presumably he is not much concerned about such a possibility, and at the same time imag- ines that he is strong enough to face all the music that may come along regarding any or all of his official acts, but, nevertheless, some of his good friends should quietly admonish him that in assailing the fire insurance interests of his State, as he has been doing, he is making a mistake, and is not unlikely to find himself in a good deal of trouble ere long, politically, officially and personally in consequence." The following quotation, approving a speech made by an insurance commissioner of another state, shows that the fire companies do not want insurance commissioners to favor investigations: "He did not attempt to stir up any new species of investigation which might possibly embarass some branches of the insurance busi- ness." (Insurance Advocate, New York, September 36, 1914.) This extract from the Insurance Post, of Chicago, June 3, 1914, shows clearly the desire of the companies that all knowledge of evils should be kept secret : "In April, O. B. Ryon, general counsel for the National Board of Fire Underwriters, addressing the Fire Insurance Club of Chicago, said: 'Don't take your grievances to the insurance department unless they are of a general character. Remember, while you are getting your little complaint fixed you may be 'fixing' the whole fraternity. Mr. Ryon usually knows what he is talking about, but he possibly did not know how very appropriate that advice was just at the moment. About that very time certain Chicago agents were asking the Illinois department to correct grievances and they seem to have started some- thing which they can not stop." Little confidence can be placed in the articles of the insurance journals, their functions being more to suppress facts than to give publicity to any evils in the business. The attitude, however, of the general press, when free from insurance influence, is just the contrary. This is well shown by the following editorial from the Illinois State Register of July 87, 1914, which, in the course of the discussion of a particular incident, states 188 clearly the improper control over the insurance press by the com- panies in these emphatic words : NEWSPAPER AND TRADE JOURNALS. iThe relative value of insurance trade journals and the daily papers as a medium of conveying news to the public is strikingly shown by a comparison of the editorial comments of a foremost rep- resentative of each class on the report of Insurance Superintendent Rufus M. Potts, covering his investigation of the stock and bond holdings of eastern fire insurance companies in the New Haven Rail- road. The report showed that these companies hold over $7,000,000 in this worthless paper. The Chicago Herald commends Mr. Potts, and points out that the public is vitally interested in such matters and should be kept in- formed. The sentiment of the editorial is expressed in the following: "And now comes this statement from the State's commissioner of insurance to show that this situation which we have been regarding with calmness, as alien to our interests, affects to a certain extent everybody who takes out a fire insurance policy in Illinois." On the other hand, the Insurance Field, of Louisville, Ky., a lead- ing insurance journal, severely criticises Judge Potts for making such a discovery public, the editorial declaring that : "The companies holding these securities are probably as a rule able to charge off their losses. * * * There are insurance au- thorities much nearer than Judge Potts to the insurance companies and their railway investments who can be depended upon to give the most conscientious attention to the financial affairs of the companies' as they may affect the public. * * * jf there is any particular company endangered by too much New Haven diet. Judge Potts might take quiet steps, but to attempt to 'bawl out' 43 big companies on a blanket criticism that probably will not vitally affect any of them is a grave error." This contrast simply reflects the fact that articles in insurance journals are not news items, but are published for the sole purpose of protecting the trade, and the public dealing with these interests can not with safety rely upon such organs. The covering up of this dis- covery would probably have brought fulsome praise from this very journal for the insurance superintendent, and the insuring public of the State of Illinois would have been none the wiser. However, dur- ing his administration in the insurance department. Superintendent Potts has taken the stand that where a company or class of companies violate the law, refuse to conduct their business legitimatelv, or en- danger the safety of their policyholders through questionable' specula- tions, the public is entitled to have all available information as their protection against further victimizing. Under all theories of insurance, the money invested by the com- panies in New Haven stock does not belong to the companies; it is the accumulation of the premiums of the policyholders set aside and held in trust to pay their future losses, and when it is wasted and 189 devastated the trade journals declare that the facts should not be made public. It is difficult to see what this insurance journal has in mind when it insists that such discoveries as made public by the Illinois department, which everybody must admit is of vital importance to every policyholder for whose protection it exists, should be kept secret. The Insurance Field charges that such actions can not help Judge Potts in his '"clean-up campaign, "but only help to cast suspicion on the business." It would seem far better for such a paper to lend its support and editorial energies to a movement which will clean up the business and raise its plane to a point where it need fear neither adverse publicity nor investigation. CHARGE OF "POLITICS." It is always maintained by the companies, with hypocritical assumption of martyrdom on their part, that they must ever bear the brunt of attack from self-seeking public officials. They express in pathetic terms a yearning to protect the people from loss by fire, but claim that the foolishness of some public servants is liable to deprive the people of this great charity. It may be true that poli- ticians have in the past secured lucrative livings for some men at the expense of the companies, but this is because the companies fully realize that on account of their violations of law they are at all times open to successful attack. Open, vigorous prosecutions in courts of law are not methods adopted by the beneficiaries of monopolies' corrupt generosity. I am not restraining insurance, but restraining monopoly; I am not fighting stock fire insurance companies, but am preserving the rights of the people of the State of Illinois ; I am not stifling business, but am trying to preserve an open market in the fire in- surance business in this State, as President Wilson is doing in other lines of industry in the Nation. In bringing the antitrust suits, my aim is to make insurance an open and competitive field, and to effectually prevent, for all time, the creation and maintenance of such insurance trusts or combines as exist to-day. These com- panies do not undertake to offer any legal substitute for the evil practices that now exist; they will not willingly permit others to correct these evils. The truth is that the all-powerful fire insurance trust has been in control so long, their fortifications are so well established through the insurance press, that they feel they can resist the demands for reform by all state governments, and hence will make no concessions, but seek immunity on the bluff that they will leave the state in case we seek to regulate or control them. The sub- joined are recent examples of such threats repeatedly made fol- lowing the efforts of this department to secure relief. "Several important fire insurance companies have announced their disposition to stop writing insurance in Chicago or in Illinois if the insurance department should be able to enforce its demands for a reduction in rates." (The Insurance Press, September 8, 1914, p. 7.) 190 "It is almost unbelievable that the courts of Illinois will approve the attitude of Potts ; but, in the event' that they do, we should expect to see withdrawals of self-respecting companies from the State." {The Surveyor, September 11, 1914, p. 27.) Even if the "combine" companies should put these arrogant threats into execution, and by concerted action quit IlUnois, while it might cause some temporary inconvenience, it would, in my opinion, ultimately benefit Illinois property owners. It would afford an oppor- tunity to at once create and put into operation a system of State fire . insurance. This might be a somewhat difficult task if the insurance companies were fully occupying the field, but if the "combine" com- panies, by concerted action, abandon the State for the purpose of co- ercing the State government into permitting the antimonopoly statutes and common law of the State to be contemptuously violated, these ob- stacles will no longer exist and State fire insurance can be easily and advantageously put into successful operation. In this connection, I believe a brief presentation of the advantages of State fire insurance will be of interest. STATE INSURANCE. In the first place. State fire insurance will afford infinitely better security to property owners than all of the "combine" companies and their assets, even if all were united in one gigantic insurance corpora- tion. Equally important, the fire premiums could be reduced to one- half of the present "combine" rates or less. The claim is not extrava- gant. As shown above, the rates under state insurance in European countries are only one-ninth of the rates here. While we would not hope to be able to make such low rates immediately, they would be approximated in a reasonable time, and great immediate reductions would be possible. In my judgment, one-half of the present charge would be an adequate rate under state fire insurance because, in round numbers, only one-half of the premiums collected is claimed by the fire insurance companies to be actually paid for losses ; the remainder, they say, is all used for profits and expenses. As we have seen, all authorities who have written on the theory of fire insurance agree that such insurance is, in essence, a tax by which the fire losses are distrib- uted throughout the whole of the community, instead of falling wholly upon the unfortunate individual whose property is burned. Now, it is exorbitant to absorb 50 per cent of a tax in its collection and disbursement. Under European state insurance less than 15 per cent is required for expenses, and no profit whatever is made. With the expense reduced to less than 15 per cent, instead of 50 per cent, the cost of insurance to the property owner would be cut down nearly one- half. The remainder can be rapidly reduced by preventing over-insur- ance, by compelling the repair and improvement of "firetraps" and "fire breeders," and by the stringent prosecution of the too frequent crime of arson. That such a reduction is not an idle dream, but can be made an immediate reality if proper measures are taken, is proven by the recent extraordinary reduction of fire loss as shown by the ratio of loss to insurance in New York City. The reduction from the year 1912 to Loss Loss buildings. contents. 11.48 $17.77 1.00 8.93 191 1913 is exhibited by the following tabular statement taken fi-om the Spectator's "Year Book," 1914, page 505, which shows the number of dollars loss for each one hundred dollars of insurance in force on buildings and contents in which fires started : Insurance Years. in force. 1912 $100 1913 100 The amounts of insurance premiums are not given, so that the decrease can not be shown in the form of percentage loss ratios as usually done elsewhere in this report, but this method gives a compari- son for the different years of the proportion of losses to insurance similar to that afforded by percentage loss ratios. This shows that in one year the fire loss on buildings was reduced to two-thirds, and on contents to one-half of what it had been the year before. This is an enormous difference, which means a decrease of millions of dollars in fire loss in the metropolis alone. No such sudden drop in the fire loss ratio ever occurred before. It did not happen at this time without cause. When the course of the fire insurance business in New York City for these years is investigated, it is not difficult to see what the main cause was which brought about this extraordinary and desirable reduction. Doubtless, part of the improve- ment was on account of improved building construction, better fire protection, installation of automatic sprinkler -^equipments and the installation of a high pressure water system. But these factors had been in operation for several years and only account for a general decline, and not for the sudden tremendous drop. It will be remembered that, in 1913, there was a great upheaval in fire insurance circles in New York City and an exposure of the so- called "arson trust." The operations of the latter were made possible by collusion between corrupt local insurance agents and incendiary property owners. This became so notorious that insurance could be obtained for several hundred dollars on furniture, etc., in the tene- ment district, the actual value of which was only a few dollars. Of course fires happened and the corrupt agents paid the losses, receiving their "rakeoff." The same thing happened in relation to stocks of merchandise of all sizes. This condition became so bad that exposure followed, and these evils were largely corrected. This, in my judg- ment, is the explanation of this sudden drop. I wrote the "combine" officials as to what interpretation they placed upon it, but they pro- fessed ignorance and proceeded to cast doubt upon the reliability of the figures given in the Spectator "Year Book," but would not furnish any others. In view of what I have heretofore stated, this is what might be expected of the "combine." Although conditions in Illinois cities are not as bad as they were in New York in 1913, still, if arson was entirely eliminated, a similar, but smaller, drop would occur in the fire loss ratio of Chicago and other cities. A similar sudden reduction took place in Texas, coincident with a change in Texas laws, which went into operation in 1913, and provided that rates be made by a state commission and estabhshed other insur- ance reforms, such as proper credit for fire prevention devices. The 192 Texas fire loss ratio in 1912 was 85.8 per cent, in 1913, 55.7 per cent, a reduction in one year of 30.1 per cent. (Insurance Age, September, 1914, p. 303.) No other reduction of like magnitude has occurred since the amount of insurance in that state became large enough to afford reliable averages. The companies are wholly dependent for business on their numer- ous local agents. These receive a percentage commission on the premiums, so it is to the local agents' advantage to acquiesce in over- insurance, and see that every applicant is allowed insurance, whether his property is a firetrap or not. It is probable that many honest insurance agents do not allow these interests to control, but they exert steady pressure toward reckless insurance and high fire losses with consequent high premium rates, and in the aggregate have tremendous influence. The truth is, that instead of fires being diminished by insur- ance, they have been greatly increased, and, so long as the companies are able to collect rates which will pay all losses and a good profit, they are content. In fact, occasionally an insurance company officer has been found frank enough to admit that it was desirable that the fire loss was large, instead of small, provided they can fix the rates high enough to pay the losses, because they and their agents will get their percentage of profit and commission on a large, instead of small, premium. For instance, the general manager of the Scottish Union and National Insurance Company, of Edinburgh, says: "Were there no fires there would be no insurance business ; and, on the other hand, the greater the fire damage, the greater the turnover out of which insurance companies make profit. * * * Speaking to-night as manager of a fire insurance company, I say we can not make profits for our shareholders without fires, and, further, thai within certain well-defined Umits we welcome fires." (Quoted in Collier's, February 22, 1913.) Edwin Milligan, vice president of the Phoenix, of Hartford, in his testimony before the Illinois Insurance Commission, says : "Speaking for the company, for the fire insurance companies, 1 should say that the reduction of the fire waste would not be a profitable thing.' I think, Mr. Chairman, that as a business fire insurance is conducted by companies — like the one I represent — ^with most satis- faction and with larger profits in the years when fires are plenty; a good number of fires means a good premium account." Henry Evans, president of the Continental of New York, testi- fying before the New York Insurance Commission (1910, p. 2890), says: "I don't care anything about a $2,500,000 or a $3,000,000 fire. Just as soon have it as not. It would put so much business on my books, and put rates so high I would make it up." A striking example of explaining how insurance companies gain instead of lose by conflagrations, and why Mr. Henry Evans and other insurance presidents do not dread them, is given in a speech made by Colonel Edwin Romberg, of Chicago, before the Chicago Real Estate Board on November 5, 1914. He says : 193 "I had a peculiar experience last June here in Chicago, myself. My secretary called my attention to an insurance policy expiring on a factory building, owned by me, situated on Root Street, near Halsted. As usual, I requested to know the amount of the insurance that we have, and told him that we would have to renew the policy and wanted to know the rate. He told me the rate would be a certain figure, plus 10 per cent. When I asked what this 10 per cent was for, he did not know, so I had him call up the board of underwriters to find out ; and this is the information he received : 'That the extra charge of 10 per cent was added to all mercantile risks in 1903, after the Baltimore fire; that the underwriters of Cook County then decided upon a general increase of rate on all ordinary or special risks of 10 per cent on build- ings and 25 per cent on contents, but that this rate would be eliminated by the Dean Schedule as soon as the district could be brought under that schedule, which will be' in about a year's time.' In other words, gentlemen, you have been raised lo per cent on building and .?5 per cent on contents on an immense amount of insurance on account of the Baltimore fire which took place twelve years ago, and they have never taken off this increase from the rates, and I dare say that you, as well as the rest of the people in this city, are not feven aware of it." This same spirit appears to control in the insurance business everywhere, although it is concealed as far as possible, and only becomes visible by reason of some special investigation or agitation. There has been much agitation in Kentucky, and the chairman of the Kentucky State Insurance Board (Statement, etc., April 29, 1914), says : "A very prolific cause of losses incurred in this state, as admitted by the companies, is due to overinsurance. To correct this evil, so far as possible, the State Insurance Board was given the right to inquire into the question of insurance upon property as to its value, thus, in so far as possible preventing fraud losses. The companies, how- ever, because of their antipathy to sta,te regulation, seriously objected to this, as well as all other provisions of the law. They seemingly little care how great their losses may be so long as state supervision is pre- vented and the making of rates charged for insurance left entirely in their hands." In the series of articles in Collier's Weekly, beginning February 8, 1913, satisfactory proof was given to support the following statement made therein: "At the very lowest estimate incendiarism, either active or passive, is responsible for one-half of our fire loss. * * * When we calcu- late everything that our fires cost us, we may set our arson loss at one-quarter billion dollars a year. No lower estimate is possible." The New York Insurance Commission report (1910, p. 119), says: "Against that we have a certainty that the fire loss could be at least cut in two ; that there could be not only a saving of one hundred million dollars a year in property now destroyed, but nearly as much —13 P S 194 more insurance expense, certainly hundreds, perhaps thousands of lives saved and a world of worry and suffering." Commissioner Lewis, of Kansas, at the National Convention of Insurance Commissioners (Proceedings, 1910, p. 68), says: "The question of overinsurance is a subject that should receive the attention of this convention as much as any other thing that we have before us for consideration, in my opinion. I believe that if we could eliminate overinsurance that the rates in Kansas could be reduced 50 per cent, in my honest judgment." This incendiarism can be eliminated almost entirely under a system of state insurance. Much good is now being done by the Illinois Fire Marshal, but present conditions prevent the full accom- plishment of the purpose of that department. However, with state insurance, officials deal directly with, for and in behalf of the state, rather than with an insurance trust controlling the insurance business in Illinois. The Hon. James R. Young, president of the National Convention of Insurance Commissioners, in his address at the annual meeting at Asheville, N. C, September 15, 1914, said : "Although the strenuous efforts to reduce the immense fire waste in this country is being continually and intelligently increased, the great loss of life and property grows unabated. It is nothing less than a crime and a reproach to us as a civilized nation." "underwriters laboratories." But some insurance advocate will say: "Does not the 'combine' maintain in Chicago an extensive underwriters laboratory for the purpose of testing fire preventing devices, etc.?" This may be true and still little benefit accrue to the public. Different motives control the different subdivisions of the great fire insurance companies. Subor- dinate departments may be attempting to disseminate information to diminish fire losses while the men "higher up" are either wholly indif- ferent or, when their real sentiments can be obtained, openly hostile. An objectionable phase of the operation of the "underwriters labor- atories" has lately been called to my attention. The insurance interests have procured the making of requirements in some Illinois cities that the material in electrical installations and certain other appliances must be approved by the "underwriters laboratories." These laboratories charge a fee of from a minimum of fifty dollars up to hundreds for testing materials and devices which tends to prevent competition therein. By this means, some very clever monopolies have been built up. DISTRIBUTION OF RISKS. An important feature of safety in the fire insurance business is what is technically called a distribution of risks, that is, that insurance should cover a great number of risks so that there will be some approx- imation to uniformity in the number of fires that occur within a year. In the first place, the necessity for distribution would be much less important to state insurance than to corporation insurance, because the credit of the state is more able to stand sudden demands made upon it by irregular distribution of fire losses. The State of Illinois, how- 195 ever, is so large, the number of separate properties insured is so great, that State insurance covering all properties in Illinois would give a much better distribution of risks than is attained at the present time by the largest fire insurance companies, so that there could be no valid objection in Illinois to state fire insurance on account of lack of suffi- cient distribution. The companies have a distribution of territory rather than of risks, and it is the distribution of risks that counts. CONFLAGRATION HAZARD. The opponents of state fire insurance reserve, for their final argu- ment, the "conflagration hazard." There is no question that, in the past, several large conflagrations have occurred in the United States, one being in the city of Chicago in 1871. But the possibility of con- flagrations is no barrier to state fire insurance in Illinois. Another Chicago conflagration, such«as that of 1871, is an impossibility, and the continuous parading of this argument by the insurance "combine" shows the weakness of their position. At the time of that fire, a great majority of the buildings were of wooden construction in congested areas; 17,430 such buildings being burned. The fire department and its equipment were insignificant compared with the splendid equipment and efficient service of the present fire department. Fires will occur, but they can not spread among brick and stone buildings of modern construction with modern fire protection. This is proven by the fact that fires are in most cases being confined to the buildings in which they originate, and always to a very small area. As fireproof buildings have multiplied and the efficiency of fire fighting devices and equip- ment increases, the conflagration danger has become negligible. A conflagration occurring 43 years ago is heralded by the insurance trust as a horror to be expected to-morrow, although every day in the city of Chicago fires occur which might have proven disastrous years ago which are now easily controlled and soon extinguished. This fact is certainly proof of the ability of modern cities to prevent serious con- flagrations. The conflagration hazards arise out of conditions which no longer exist in modern cities. The New York Insurance Report (1910, p. 121), says: "The conflagration hazard in New York City is mostly due to the thousands of old buildings built in the days when neither steam or electricity or gas were important features of the hazard. They are not adapted to modern conditions." The loss of property covered by insurance in the Chicago fire was $91,000,000. The companies, however, only paid about $35,000,000, so the argument of "business safety" in case of conflagration is not well served by the example of the Chicago fire. However, conservative business judgment may require that provision be made to meet any possible conflagration hazard. This can be done as well by the State with the people's money as it can be done by the companies with the people's money. A small percentage set aside out of the premiums, the savings of a few years, will create a conflagration fund sufficient to meet any emergency. The San Francisco "conflagration' 'is fre- quently dwelt upon by the insurance press. This originated in an 196 earthquake in which the upheaval alone destroyed much of the prop- erty, and the loss by fire was secondary. The defenders of the present, "combine" system can not claim that Illinois is located in an earth- quake zone in ordei* to apply this disaster to Illinois conditions. STANDARDIZATION. The business of fire insurance must be standardized by creating a system which will reduce both expense of administration of the fire tax to the lowest possible figure and also act as a preventive instead of an encouragement to fires, and in this way produce the greatest benefit to the greatest number at the least expense. This can not be accomplished with the business in charge of private corporations, whose sole aim is profit for the stockholders. The system by which they must operate is cumbersome, immensely expensive and wasteful, and, worst of all, increases instead of diminishes fire waste. Insurance by the State, if properly organized, can and will bring a thorough standardization of the business. Discriminations will cease because no lower rates could be obtained by "pull" or "influence" ; with a preven- tion of overinsurance and an inquest following each fire, incendiarism for profit would vanish. Building and other regulations for the pre- vention of fire could be enacted and enforced and with other reforms the full purpose of distributing the effects of lessened fire losses throughout the whole community could be accomplished at minimum expense. Fire insurance is of all businesses the one which can be taken over and operated by the state without inflicting any injustice on capital engaged therein or creating any financial disturbance. The capital of the insurance companies remains intact and can be taken by the stock- holders and placed without loss in other enterprises. Stockholders will also have, in addition, immense surpluses which many times exceed their stock investments to be divided among them. The insurance companies have absolutely no fixed investment, the value of which will be destroyed if the state takes over their business, such as would happen in other lines of industry. Their only property which would be rendered useless is stationery, the value of which is insignificant. The only persons whose interest would possibly be harmed would be those high officials who draw salaries larger than the president of the United States. It is improbable they could find such enormous salaries in any other business ; but they have accumulated such fortunes that they can doubtless continue to live lives of luxury the remainder of their days, even if they do not see fit to engage in other enterprises at moderate salaries. It would be wrong to say that the people did not have the right to protect themselves from extortion by carrying on the insurance busi- ness themselves, even if it did destroy the value of property employed by private corporations in this business, but fortunately even this does not occur and all the capital and immense surplus will be returned intact to the insurance companies' stockholders. CONSTITUTIONALITY. The objection may be made that state fire insurance would be unconstitutional but an examination of the decisions of the higher 197 courts of the State of Illinois, and of the other states in the United States, fails to disclose any decision in which the question of the con- stitutionality of a system of state fire insurance has ever been raised. The_ general rules as to the powers of the State are laid down as follows: (Harris v. Board of Supervisors, 105 111., 445, 450.) "The question of legislative power and its extent depends on the limitations contained in the Constitution. When a state is created, it is invested with complete sovereign power, unless restricted by con- stitutional limitation, and under our system of government such restric- tions are written and embodied in organic law. Were it not for these limitations, the legislative power would be without restriction. When we have to determine whether an act is within the scope of legislative power, we do not look for an express delegation of the power in the fundamental law, but we look to see whether the general power has been limited." The same principle is again stated in People v. McCullough, 254 111., 9 (16). "The Legislature may pass any law and do any legislative act not prohibited by the Constitution of the State or the United States." There is no prohibition in the Constitution of the United States against a state engaging in fire insurance; therefore, in determining the question of the constitutionality of state fire insurance, it is only necessary to examine the Constitution of the State of Illinois, (1) to see whether there is any positive provision in regard to the creation of state fire insurance, and (2) whether thera is any prohibition of state fire insurance. An examination of our State Constitution discloses that there is no provision for the creation of a state fire insurance system. Neither is there any provision prohibiting a system of state fire insurance. Therefore, we are justified in the conclusion that a system of state fire insurance, created by our Legislature, would be. constitutional, because the general power of the Legislature in that respect has not been limited in any way whatever. This conclusion is supported by a number of facts. In the first place, under the present Constitution, the creation of a State bank is expressly prohibited ; also the rendering of aid or granting of money to railroads, or similar enterprises. These prohibitions were necessary because, if they had not been inserted, the State would have had power to engage in such enterprises, which the framers of the Constitution deemed undesirable, and, consequently, found it necessary to insert in the Constitution these express prohibitions. Further support, which would seem conclusive, is afforded by the fact that, although there is no express provision made in the Constitu- tion for these things, the State has legally engaged in many enterprises, of a nature similar to fire insurance, for the benefit of the people of the State. For instance, it' constructed the Illinois and Michigan Canal; the Illinois Central Railroad, (partly) ; it appropriated money for the purchase and maintenance of a State Park at Starved Rock, Illinois; it appropriates money and provides an organization for the purpose of conducting a State Agricultural Fair, and for the support 198 of farmers' institutes; a State Geological Survey; a State Natural History Museum; a State Historical Library; a State Library; for the improvement of the Illinois and Desplaines River; for the main- tenance of a biological laboratory f6r the purpose of furnishing free hog cholera serum; and maintains many State charitable institutions. All these things and institutions are for the benefit of the people, and the constitutionality of their creation and appropriation of money for their support has never been successfully questioned. In People v. Canal Trustees, 14 111., 402, the Supreme Court decides that the State has power to legally appropriate money for the purpose of building bridges. A system of State fire insurance would be self-supporting. But, even if it should require an appropriation of money out of the State treasury for its inauguration or for its maintenance, this fact would not render it unconstitutional, and there does not seem to be any reason or authority to believe that a system of State fire insurance in Illinois would be unconstitutional. There is no difference in principle between the State engaging in fire insurance for the benefit of the people, and their protection against the fire insurance monopoly, and the State engaging in the manufacture and furnishing of hog cholera serum for the benefit of stock-raisers, or maintaining a State fair for the benefit of agriculture, or bridges for the benefit of travelers. A system of State fire insurance could be very conveniently and economically conducted, together with a system of State management of workmen's compensation. The same commission could have charge of both. The management of the workmen's compensation by the State is a reform which is already in operation in several states and gives, the injured workman two or three times as much compensation as stock company casualty insurance at no greater cost to the employer, because the casualty companies absorb, in- expenses and profit, one-half to two-thirds of the premiums received by them. It is very desirable that the management and control of workmen's compensation in Illi- nois be taken over by the State, and it would add to the economy and success of operations to have them begun at the same time and carried on by the same commission, and each would benefit similarly the par- ties concerned with each -of these burdens. They are both burdens, from accident and misfortune, and should be made as light as possible. RAPID SPREAD OF WORKMEN'S COMPENSATION. It will be remembered that until about five years ago the working people of every state in the Union suffered from unjust liability laws. When an investigation was made and the operations of these laws, together with their abuse by stock casualty insurance companies, was disclosed, it was declared to be a national disgrace and workmen's com- pensation substituted. When this reform was urged, the stock casualty companies arose in holy horror, cried paternalism, and urged every possible objection to workmen's compensation. Within a period of some five years, however, about two-thirds of the states adopted work- men's compensation measures, some of which are administered by the State. Now the people can not understand how the old employers' liability system was tolerated and look upon its past operation as a bbt 199 upon the industrial history of our country. We are approaching the same reform in fire insurance. The enactment of a system of State fire insurance in one of our states would mean that this system would be adopted throughout the United States as was workmen's compen- sation. Illinois has led in other reforms, and there is no reason why it should not lead in this progressive movement. MERCENARY PERVERSION OF BENEFICENT IDEA. Modern fire insurance is the evolution of a beneficent idea. It was not discovered like a hidden mine, a virg;in forest, or an un- claimed prairie ; hence, the fire insurance industry belongs to no person, set of persons or corporations, and none possess any vested rights or territorial claims upon this industry. Fires are misfor- tunes, and it is in violation of all ethics and rules of public policy that corporations should not only profit from, but build up and con- trol a business for profit only, based solely upon the misfortunes of our people. The fire insurance business evolved from this benef- icent idea should be administered through a system of state fire insurance without profit or emolument of any kind to any person or corporation. It is not paternalistic for a state to protect its citizens against oppressive and excessive burdens, but it is evidence of weakness if a state fails to relieve its citizens by removing the underlying causes from which oppression and excessive burdens result.. That our citizens are bearing an excessive burden and are sorely oppressed by the present system of fire insurance must be admitted by all. Immediate and complete relief is imperatively demanded, and state fire insurance is the only medium through which complete relief may be obtained. The theory of state fire insurance carries with it absolutely no basic difficulties. There is no reason why the State of Illinois can not administer a system of state fire insurance with the people's money as ably, efficiently and effectually as any corporation or num- ber of corporations may likewise do with the people's money. Thus the cry of paternalism so loudly proclaimed by insurance trade jour- nals is but the echo of the wail of the wounded corporations, estab- lished for private greed and feeding solely upon the misfortunes of our people. It is not considered paternalism for a city to maintain a fire department ; yet the maintenance of such a department is simply a form of municipal fire insurance, which reduces for its citi- zens the fire hazard. There is no valid reason why this principle should not be extended to a system of state fire insurance which could be administered with the burdens equitably distributed among the insuring public, and thereby the whole people reap the full benefit of complete protection without profit or tribute to any per- son or corporation. ' That the stock fire insurance companies will voluntarily reform is beyond the dream of the most optimistic, nor can they be invol- untarily reformed.. These corporations, assembled like a hostile fleet, are now exerting every possible effort to defend and maintain the unrighteous privileges that they have long enjoyed. They al- 200 ways have, and do now, oppose all progressive and constructive methods suggested or inaugurated in behalf of the insuring public, and they openly threaten to dislodge any state or government offi- cial who seeks to bring about reformation of their business, in order to protect the State and the people from their oppressive practices. They are now gloating, drunk with the pride of power, over the recent defeat of Commissioner Ekern's policy of fire insur- ance reform urged by him for the state of Wisconsin. With such sordid institutions intrenched as they are, reformation is impossible. State fire insurance would mean a saving to the people of the State of Illinois of approximately 15 million dollars a year, to begin with; this sum is about the present yearly State tax. In 30 years this would mean a saving to the people of our State of more than 300 million dollars. But the actual dollars saved would not alone measure the benefits. Many lives wtould also be saved that are now sacrificed by preventable fires. The reserve accumulated from in- surance premiums deposited in the hands of either the State Treas- urer or a commission could be invested under the strictest statutory safeguards, and in such a manner as to establish a favorable market for State and municipal securities and for real estate loans.^ ALTERNATIVE RATES CONTROLLED OR MADE BY STATE. If, however, for any reason a system of state fire insurance can not be immediately put in operation in Illinois, then the protection of our citizens demands that rates be controlled by the State. The recent decision of the United States Supreme Court in what is known as the Kansas rate case holding that the states have power to regulate fire insurance rates finally disposes of any sup- posed legal difficulties. This decision contains an exhaustive discussion of the whole question of the power of the states to regulate insurance rates. In it the Supreme Court replies conclusively to the arguments of the insurance "combine" against the right of the state to regulate in- surance rates. This decision settles the question absolutely, and is well worth careful reading by everyone interested in the subject of insurance', so I attach a copy thereof to this report, as an appendix. In view of the facts and conditions which I have already de- scribed it appears to me that some method of effectively regulating insurance rates by the State is imperatively necessary in order to iNoTE. — On April 3, 1914, I delivered an address on State Insurance before the "Conference on Life, Insurance and Its Educational Relations" at the University of Illinois. In that address, I did not include fire insurance in the list of insur- ance branches which I considered should be conducted by the State, yet I did lay down a general principle applicable to all insurance in the following language • "There are certain economic conditions associated with classes of Individuals or lines of industry, by reason of which the State must recognize and assume a special responsibility and grant relief through the administration of a system of insurance. Under such conditions, the State is fully warranted in taking over the business of insurance." Prior to the making of that address, I had not specifically inquired Into Are msurance conditions in this State. My investigation, as covered by this report, has been made smce that date, and I am now convinced, beyond all doubt that the business of Are msurance comes clearly within the general principle I laid down in that address, and that it should have been included in the list of insur- ance branches to be administered by the State. I now confess that, prior to my nvestigation, I did not reahze and had but little idea of the enormous burdens imposed upon the people of my State through the operation of the stock Are in- surance combine. 301 protect the citizens of Illinois. On account of the existence of the "combine" there is no such thing as securing reasonable rates through competition. The United States Supreme Court decision, which I mention above, is conclusive authority for the right of the State to regulate insurance rates. All that is necessary to secure relief is legislative action. It remains, then, to be considered what is the best method and means of regulating insurance rates. I be- lieve that it should be done by an insurance commission composed of three members. If such a commission only had power to pass upon the rates made by the insurance companies, it would afford considerable relief and be a distinct advance over the present con- dition of absolute control of rates by the "combine," which is miti- gated only in small part by competition from the mutuals and inter- insurers. I believe, however, that it would be still better for this commission to have the power to themselves, to make a classifica- tion of all the property in the State with reference to fire hazard ; collect statistics of fire losses under this classification, and, upon the information thus collected, make reasonable maximum rates which the companies would not be allowed to exceed. This commission should have wide powers in relation to fire insurance rates, similar to the powers which the Utilities Commission has over the charges which public utilities are allowed to make. Unless, however, such a commission could make a correct and thorough classification of property and then accumulate statistics of fire losses in these various classes, they would have insufficient means for determining whether or not any rates tendered by the companies were equitable or not. The companies have no power to require these statistics, nor would they be disinterested parties in collecting and applying the same ; therefore, the classification and collection of statistics of fire experience can only be done by a State Commission ; but if a commission, and only a commission, must do all this, then they will be in better position to themselves make the rates than any companies or "combine" of companies. In further detail the plan which I recommend would be some- thing substantially as follows : (1) There should first be made a scientific and thorough classi- fication of all fire risks in the State into a sufficient number of divis- ions so that all risks will be placed in classes where the hazards will be substantially equivalent. (2) The maximum fire insurance rates on each class should be fixed by a commission appointed by the Governor, of which the insurance superintendent would be a member; these rates to be based upon all the experience available as to losses in the different classes and modified from time to time, as further accumulated ex- perience might indicate just and proper. Allow any insurance com- pany to make whatever minimum rate it may see fit, provided that all such rates on the same classes of property in the same com- munity are uniform, and that, when such rates are once made, they can not be raised for at least twelve months. The latter provision is for the purpose of preventing discrimination by allowing every insurer to have at least one year's benefit of any lower rate. It 203 would also prevent temporary rate cutting to drive other companies out of business. . j- u (3) Any combination, agreement, pool or understandmg by and between fire insurance companies for the purpose of makmg rates should be absolutely prohibited, but, during the time which might elapse from the passage of such a law until a classification was worked out and rates established by a commission, the com- panies should be allowed, after filing schedules thereof, to collect such rates as such insurance commission might deem reasonable. All rates during the interim period should be under the control of the commission and made reasonable and free from discriminatioil. The plan outlined in paragraphs 1 and 2 above is substantially that in force in Texas, from which very good benefits have been derived, both to owners, and, strange as it may seem,, to the com- panies themselves. The companies are benefited because, by reason of the law, they have been obliged to select better ageiits, and these have rejected bad risks and so have reduced the burning ratio im- mensely. This would never have been done under the previous system. A similar benefit will accrue in Illinois. In the first annual report of the Texas Fire Insurance Commis- sion, just made to the governor of that state, the absolute control by the state of fire insurance rates is declared to be "highly success- ful" and "the results obtained have shown that the state can control rate-making and fix reasonable rates in a manner just to the people and equitable to the insurance companies." The state rates are made in Texas at the expense of the insur- ance companies, which are assessed l}i per cent of their gross Texas premiums for this purpose. The key rate system is used, in whicl) "cities and towns are classified scientifically according tof general construction, width of streets and alleys, general fire hazard and municipal protection." This, the report says, has encouraged cities to enact ordinances for public safety, and to improve water- work systems and fire departments. Also fire hazards are penalized and thus the public is encouraged to eliminate fire dangers, with the result of a marked reduction in fire loss in Texas. Confidence in the law, as well as approval of its economic benefits,. is shown by the fact that not a single request for a public hearing by the com- mission has been made, and there has been no unified complaint dur- ing the fourteen months of its existence. There are 146 local fire marshals in Texas who work in con- junction with the state fire marshal. It is said, however, that the state fire marshal needs more power to be able to effectually enforce the law and obtain more convictions for the crime of arson. Whatever method is adopted for the control of rates, the com- panies should not be allowed to combine for the purpose of fixing and maintaining rates, even und^r regulation. Such a "combine" is contrary to the statutes and the common law of the State of Illi- nois, and it would be an evil example to allow the insurance com- panies, whose business is the most profitable of all, to continue the "combine" under any form or pretext whatever, even if there was absolute control by a commission over rates, the "combine" would 203 still have immense power of oppression through control of local agents and numerous other methods possible to skilled manipula- tors. Also the public would be deprived of the benefit of competi- tion which might, and in some classes and localities could and would, lower rates below the figures allowed by a commission. EXCESSIVE PROFITS OF INSURANCE COMPANIES. A statement which the insurance companies and their advocates are very fond of making is that, in the insurance business as con- ducted by private corporations, the rates collected by them must be enough to pay all losses and expenses and a profit. This is a gen- eral statement which appears, on the face of it, to be fair and rea- sonable, but in reality is exceedingly deceptive, because it is incom- plete, lacking some very important necessary qualifications, from the nonobservance of which a large part of the present day evils in fire insurance arise. These qualifications are: (1) That the losses must be unavoidable, bona fide losses, and (2) The expense and profits must be reasonable. Now, the facts are, that the losses to meet which rates are now fixed are not all unavoidable and bona fide, but a large part thereof are the direct result of over-insurance, criminal negligence and plain arson, for much of which the companies and the system by which the business is carried on at the present time are responsible. It is, perhaps, true, that over-insurance and its resulting evils are not directly encouraged by the companies themselves, but they are the direct results of the agency system and the large number of dishonest and reckless insurance agents. The results from the local agency system can not be expected to be otherwise, when you reflect that the compensation of the local agent is a percentage com- mission on the gross amount of the premium, or tax, paid by the insurer. It is, of course, true that there are many honest insurance agents who do not allow this consideration to influence them wrongly, but, unfortunately, there are also many not of this sterling character, so that in the aggregate the influence of the percentage commission is tremendous, and a constant pressure in favor of over- insurance. The ordinary insurance risk is not seen by anyone con- nected with the insurance company except the local agent, and not often even by him. Consequently, the insurance is written at what- ever value figure the local agent may wish, and it is not only to his interest that the premium rates be high, but it is further to his in- terest that there be quite frequent fires, because this strikes fear to property owners, causes them to seek insurance and makes them willing to pay high rates for it. When a local agent presents a bad risk, the insurance company will accept it in order to secure the good business the agent controls. As regards the second proviso, I find that the expenses are not reasonable. In round numbers only 50 per cent of the money col- lected as premiums is paid back to policyholders for losses. Keep- ing in mind the principle that insurance is a tax, it immediately be- comes apparent to every thinking person that an expense of 50 per 204 cent for the collection and disbursement of this tax is unreasonable and exorbitant. Profits are as far from being reasonable as expenses. The in- surance companies publish complicated tabulations from which they argue that their "underwriting profit" is very low. This claim is entiirely deceptive and turns upon the peculiar meaning given to the term "underwriting profit." In all other businesses, the difference between the total income and the total expense is considered the profit and figured as a percentage of the capital stock of the com- pany. The insurance companies, however, take the total premium receipts, and deduct, from this, fire losses, expenses of every kind and character, actual and estimated, and increases in liability. This difference is called the profit, and figured as a per cent of the total premium receipts for the year, the result being termed "underwrit- ing profit." There is no reason why insurance profits should not be calculated like that of banks and other corporatioiis, except the de- sire of the companies to conceal their enormous profits. Basing profits as they should be, upon the capital stock, some astonishing results are obtained. For instance, I find that, according to the official reports made to me by all the stock fire insurance companies doing business in Illinois, their total income for 1913 was $365,- 785,595, and their total expenditure, including dividends to stock- holders, was $338,703,831, leaving a profit of $27,081,774. The com- bined capital stock of all these companies was $117,242,333. Thus, the average profit of all these companies was 33.1 per cent per an- num. In the case of foreign companies admitted to do business here in the United States, the amounttaken as capital is the amount deposited in this country in order to secure permission to do busi- ness here. The computatioii given above does not, however, in- clude the annual dividends paid by the companies, so, in order to get the teal profit, dividends must be added. I have not been able to obtain the dividend figures for foreign companies, but have done so for the companies domiciled in the United States. These, ac- cording to their oificial reports, for 1913, had a total income of $353,077,525. In the same period their expenditures, including divi- dends, were $240,138,913, giving a difference of $13,938,613. The paid up capital stock of these companies amounts to $39,967,347, so that the average percentage of profit, exclusive of dividends, was 33.8 per cent. According to the figures given in the American Ex- change and Review (issue of September, 1914), the average divi- dend paid by the above American companies was 13.3 per cent. Adding this to the above "profit," we have 45.1 per cent per annum average real profit. These results are obtained from the figures fur- nished from the companies themselves and can not in good faith be disputed. The truth is that there is no other business of similar magnitude in the United States which enjoys such enormous profits as the fire insurance business. Certain individual instances further emphasize this fact. The profit in 1913 of the Hartford Fire Insur- ance Company was the enormous figure of 119.3 per cent, of the Continental 93.7 per cent, of the German American 86.7 per 'cent, of 205 the American 67.6 per cent, of the Boston 54.5 per cent, of the Buf- falo German 72.7 per. cent. This fact is reflected in the very high prices paid for the stocks of these companies. To more specifically illustrate these profits, I will take for an example the Continental Insurance Company. This company has a capital stock of $2,000,000, and in 1913 declared a dividend of $1,000,000, or 50 per cent. Dtiring the past five years, 1909 to 1913, inclusive, this company has declared dividends amounting, to $5,200,252, or at the rate of over one million per year. In addition to this, it has increased its assets, the property of its stockholders, over $5,300,000 ; also at the rate of over one million per year, or the equivalent of another 50 per cent dividend each year. The income upon this stock, therefore, has been over 100 per cent per year for the past five years. It might be mentioned, also, that a share of this stock of a par value ot $100 sells for $900. It might be added that other companies show years when even higher profits were made. BANKING PROFITS OF COMPANIES. It is a very striking and significant fact, known to but few, that fire companies make no reference whatever to their enormous "banking profits" when presenting statistics to the public, showing their profits. Their income from this source is large, being com- posed of interest earnings on the enormous amounts of premiums placed in their hands by policyholders, and other ordinary invest- ment profits incident to their business. The following table (which does not include, as income, deposit premiums on perpetual fire risks or cash contributed by stockholders, but only pure income) shows some astonishing results : BANKING PKOFITS. Capital stock Premiums re- income other Tear. of all ceived. (Pire than companies, and marine.) premiums. 1913 $117,242,333 $334,906,028 $30,879-,566 1912 107,854,789 323,747,258 31,186,886 1911 103,760,874 307,474,359 29,211,923 1910 98,178,324 300,251,163 26,568,040 1909 87,924,512 284,474,144 27,931,569 Tcxtals $514,960,833 $1,550,852,952 $145,777,984 PERCENTAGE OF PROFIT AS SHOWN BY ABOVE FIGURES. Percentage of "other Capital stock dividend Year. than premiums income" produced by "other than to premium income. premiums income." 1913 9.2% 26.3% 1912 9.6 28.9 1911 9.5 28.2 1910 8.8 27.1 1909 9-8 31.7 Average 9'.4.% 28.3% annually Thus it is seen that if the fire companies had expended every dollar received for premiums during the past five years to pay fire losses and expenses, they could still have declared a dividend aver- aging 28.3 per cent on their capital stock each year. When the facts concerning these enormous profits of the insur- ance companies are first presented to the average business man, it 206 is frequently difficult for him to understand how they are possible, and he is inclined to be skeptical as to the accuracy of the figures or the good faith of the statement. Consequently I venture to give a few words further in explanation of this matter. Insurance premi- ums are all paid in advance, most for the term of one year; but a considerable number for terms of three and some five years. Con- sidering for the purpose of illustration the one year policies only, such losses as occur are distributed throughout the year with some approximation to regularity. Some losses occur at the beginning of the year, some at the end of the year and the others at intermedi- ate times. Assuming that the distribution of losses is regular throughout the year, the total effect is the same as if the insurance company received interest on the total premium collected for a period of six months. In addition to this, it receives interest on its capital surplus accumulated from excess of premiums over losses throughout the whole twelve months of the year. The capital of an insurance company is not employed in the business of the com- pany as in the case of other enterprises, but is only for the purpose of affording additional security to the policyholders that there will be money to meet the losses. As a matter of fact, however, except for exceedingly infrequent emergencies, as the Chicago fire or San Francisco disaster, the capital stock is never touched for any pur- pose, but is invested in the best interest bearing securities and the interest goes to augment the income of the company. The com- pany collects an ample amount from the policyholders to pay all losses, expenses and a profit. Next take into account the fact that the capital stock of the large insurance companies is small in rela- tion to the business done by them ; for example, suppose we have a company with a capital stock of $2,000,000, a surplus of $15,000,000, and a premium collection of $10,000,000, annually. Suppose now we have an interest income of 6 per cent on the capital stock of $2,000,000, and a surplus of $15,000,000, for the entire year, and on the premium receipts of $10,000,000, for six months, the total amount of interest received would be $1,100,000, which would be 55 per cent on the capital stock of $2,000,000. These are approxi- mately the actual figures of one of the largest insurance companies for the year 1913, and many other similar cases can be given, and shows clearly how the tremendous profits of this and other large insurance companies are possible. It is probable, however, that through shrewd banking and investment operations of the' com- panies, more than 5 per cent interest is realized. It should be observed that the profits, as explained above, does not include "underwriting profits,"^ which are the only kind of "profits" to which the companies make any reference in their pub- lished statements. PROFITS FROM ILLEGITIMATE STOCK TRANSACTIONS. There is another element which enters into the question of fire insurance profits. Investigation by the United States Government 'The reader should refer to page 204 for an explanation of what "under- writing profits" are in the deceptive sense in which the companies use the term. 207 authorities into illegitimate stock manipulations, such as the New Haven stock transactions, has shown that officials of fire companies unload on their companies worthless or depreciated stocks and bonds. These securities are then sold by the companies at a loss, and this loss is included in the ordinary losses and expenses when the companies figure their profits. In the case of the New Haven Railroad, 43 companies held $7,765,691 in stocks and bonds of this railroad. Of this amount the sworn statements of the respective companies show that $1,331,061 worth was acquired in 1913, when it was known that the New Haven was certain to fail. It is appar- ent that, in this instance, "unloading" was practiced on a large scale. SURPLUS AND PROFIT PERCENTAGE CALCULATION. Some defenders of the insurance companies, however, say that instead of profit being calculated as a jjercentage of the capital stock invested in the business that it should be calculated upon this capital stock plus the value of the insurance reserve. If calculated in this way the percentage profit averages perhaps 10 to 15 per cent per annum, which they claim is only a fair rate of income. If the sur- plus had been accumulated by the self-denial of the stockholders of the insurance companies in not taking out of the business a reason- able profit, but allowing it to accumulate therein for the further security of the policyholders, there might be some justification of the position. Such, however, is not the case. These surpluses have been accumulated out of excessive profits during years in which enormous dividends have also been paid. In other words, the rates were so excessive that the companies were able to pay enormous dividends of the magnitudes shown above, and in addition pass large sums of profits to the surplus. If an equitable view of the matter is taken, the stockholders have not furnished the money piled up in the surplus, but this has been extorted from insurers as ex- cessive rates. Therefore, to claim that insurance profits should be considered a percentage upon the surplus is wholly unjustified. This surplus is accumulated from premiums paid by policy- holders, being an amount in excess of that necessary to pay fire losses, excessive expenses, enormous salaries and large dividends and belongs, as a matter of right, to the policyholder, and can not be justly considered as capital of the stockholders on which they are entitled to dividends. A stockholder is only equitably entitled to returns from" his own money, which he has paid into the com- pany's treasury. EXCESSIVE SALARIES TO OFFICERS. Another item of unjustifiable expenses of the insurance com- panies is the enormous salaries paid to its officials. It is difficult to obtain exact amounts as to these facts, but it is said that the president of the Continental Insurance Company receives a regular salary of $50,000 per annum, with certain percentage allowances which gives him a total recompense of considerably over $100,000 per annum. The officers of other large companies are similarly compensated. 208 INSURANCE HAZARD. It is sometimes claimed, also, on behalf of the companies that they are justly entitled to these great profits by reason of the risks they take. This assertion is entirely untenable. The rates are so high that they more than cover the fire loss, excessive expenses and enormous profits, as shown by a great nuniber of years of experi- ence of each company. This being true, there is, in reality, no risk whatever taken by the insurance company, except theremote "con- flagration hazard," for which also the companies provide after each conflagration by a strong raise in rates, which are kept in force continuously and result in enormous additional profit to the com- panies, as I have previously shown (p. 193). Insurance "hazards" are much less than the financial perils which beset the ordinary merchants. This is proven by the fact that a much larger per cent, in proportion to capital invested in mercantile and industrial ven- tures, fail. It is true that quite a number of stock fire insurance companies yearly cease to do business, but this results from the operation of the "combines," and neither indicates nor proves that the business is unprofitable. In 1913, out of 33 stock fire insurance companies which ceased to do business, 30 continued their existence as "an- nexes" of larger companies. This does not indicate they were doing a losing business, but simply that they were sold at great profit to the larger insurance corporations to further monopoly by reducing the number of competitors. OTHER RECOMMENDATIONS. I would also make the following additional recommendation for the reform of certain details of the insurance business in case it is impossible to secure State insurance immediately. DETAILED STATEMENT OF VAI.tJE OF INSURED PROPERTY. It should be required by law that there be made a full descrip- tion, with an explicit statement of the value of buildings insured, and, in the case of personal property, an invoice of it, signed by the owner, and approved by the local agent. The same penalty should be provided for making false statements as to value, condition, quantity, etc., of either real or personal property, as are by law now provided for obtaining money by false pretenses, in addition to ren- dering the policy voidable, in the same way that material misrepre- sentations in an application for life insurance renders a life policy voidable. It should be required that the insurance agent, before approving such statement, should make a personal inspection of all property, real or personal, included in such statement, and that this fact should be certified to in his approval of same. Such de- scription and valuation should be attached to and made a part of each insurance policy. This plan would prevent practically all over- insurance of property, which is what leads to arson. STANDARD POLICY. A Standard form of fire insurance policy should be adopted by the State, and it should be required that this contain a full and 209 complete itemization of all the hazards, credits, penalties, etc., which go to make up the complete rate charged on such policy so that the property owner could see how his rate was made up, and so be able to know how to obtain a lower rate by removing unfavorable conditions. There should be a provision that, if an owner improves his property so as to remove unfavorable conditions, the property be given a rein- spection, and a lower insurance rate immediately granted. CANCELLATION OF POLICIES, ETC. Insurance companies should not be allowed to cancel policies at will. Cancellation should only be allowed if there had been material misrepresentations, or when there has occurred a material change in the condition of the risk, and these things shoiild be required to be proven in court. If a company should bring suit to cancel a policy and a fire occurred before the case was decided, then, upon a final decision in favor of the company, it should be relieved from liability. Insurance companies should also be required to grant insurance at regular rates for the class to which the. risk belongs to any applicant in the same way that a common carrier must transport, or a hotel keeper must give lodgings to any decent person. The companies, however, should be allowed to refuse insurance for substantial objections either to the risk or the owner proven in court. agents' qualification requirements. Outside of exorbitant rates, a considerable part of the evils which aflfect the fire insurance business arise from the fact that, under the Illinois law, any person whatever can act as a fire insurance agent. It is true that the law now requires that each agent secure license from my department, but there are no qualifications prescribed as pre- requisites. The natural result is that a certain proportion of insur- ance agents are incompetent and their work perilous to the insuring public. This could be very effectually remedied by a requirement that, before agents are issued licenses,- they must show reasonable qualifica- tions which will enable them to understand and carry on the business of writing fire insurance in a careful and businesslike manner, in accordance with the insurance laws of the state. The provisions sug- gested by the Illinois State Association of Local Fire Insurance Agents appear to me to be well adapted for this purpose, and I would recom- mend that the salient features of the same be incorporated into our insurance laws. FOREIGN reinsurance AND NET LINES. The following insurance practice tends to increase the cost of fire insurance, and is also an efficient aid to monopoly — a fire insurance company will issue a policy for an amount greater than it can carry individually, and then reinsures the excess in a foreign "treaty" com- pany. There are no American reinsurance companies, with the excep- tion of one, which is owned by foreign capital. During the year 1913, $38,000,000 were sent across the ocean for reinsurance premiums. Thus cost of insurance is increased because of the increase of the number of middlemen who each make a profit from the original pre- mium paid by the policyholder. Its tendency toward centralization is —14 P S 310 due to the fact that the large companies, by reason of their great agency forces, are able to write a far greater amount of insurance than they themselves desire to carry, but reinsure the excess. Consequently, small companies are unable to secure business which they would other- wise get if no companies were permitted to write more insurance than it was itself able and willing to carry. Furthermore, the extent to which they have indulged in this practice has embarrassed several com- panies considerably, at the present time, because of the fact that they are legally responsible to their policyholders for the full amount of all policies written. In case of loss, the American companies look to the foreign companies for reimbursement, but, on account of the present European war, these companies are temporarily unable to meet their obligations. I recommend that a "net line" law be enacted, prohibiting com- panies from writing insurance upon any property in an amount greater than they are themselves able and willing to carry. CO-INSURANCE. The subject of co-insurance is one which has been liberally dis- cussed, but no legislative action taken in relation thereto in Illinois. The actual practice of the companies doing business in Illinois varies with respect to co-insurance, but I believe that a majority of existing policies are without co-insurance provisions. The companies, however, strongly desire to put co-insurance clauses in all policies for reasons mentioned below, so that this subject should be carefully considered, particularly as co-insurance is prohibited by statute in many states. ^e term co-insurance has the following meaning: Suppose an owner mstead of insuring his property for the full value decides that he will only insure for a part, say one-half its value, trusting that in case of a fire it will be extinguished before the property is damaged- more than one-half. In cities where there is good fire protection the great majority of fires are extinguished before the total loss occurs. Under the ordinary insurance policy where the property is only insured for, say, one-half its value, the company is bound to pay for all of the damage which occurs up to the face of the policy. Thus the insured for a small premium is nearly always able to collect enough money to pay all the fire loss which actually occurs. Naturally the insurance companies are reluctant to see the property owner get off so easy and obtain practically complete protection by paying premiums on only a part of its' value, because thereby their revenue is reduced. Conse- quently to prevent property owners from getting any benefit out of this plan oi insuring for only a part of the value of the property where there is good fire protection, the companies have devised what they term a co-insurance clause to be inserted in policies to the efifect that, in case a property is only insured for partial value, say one-half, in case partial loss occurs, only such proportion of that loss will be paid as the insurance on the property bears to the total value of the property. If the insurance on the property was $4,000 and the actual value of the property was $8,000, then in case of loss only one-half of the actual damage would be paid to the insured. Thus, in order to obtain the total insurance of $4,000 under such a provision, there would have to 211 be a total destruction of the property amounting to a loss of $8,000. On any smaller loss the owner would receive less than the face of the policy; if the damage was $6,000, he would receive $3,000 if $2,000 only $1,000, and in proportion for all other damages. Coinsurance is a subject as to which opinions vary widely.^ Some states permit the companies to use coinsurance clauses in their policies, but in a large part of the states this is prohibited. The fact that property is insured for less than its value is an absolute protection against arson by the owner. If the owner who pays taxes to maintain an efficient fire department wishes to get some advantage out of this expenditure by insuring his property for less than its full value, trust- ing the fire protection to prevent full loss,, I believe he should be per- mitted to do so without being penalized by a coinsurance clause. Otherwise, the insurance companies reap the benefit of the good fire protection the owner has paid for, and, if permitted to compel coin- surance, are able to collect as high rates from the insured as if there were no fire protection whatever. The companies claim that permit- ting an owner to insure for less that the full value of the property is a species of discrimination because it permits the more wide awake and venturesome business man to get protection for that proportion of the property which is liable to be damaged in the ordinary fire at less rates than the more timid man who is only satisfied by having the value of his property totally covered by insurance. This may be true, but my view is that the enterprising and venturesome owner is entitled to all the benefit he gets out of the additional risk which he takes and the fire deparment tax he pays. By doing this he is simply carrying a part of his own insurance. There is no discrimination whatever in permitting owners to insure for less than full value because any man can do this if he desires. Discrimination only arises where the effect is to give one man a privilege which others do not have. The fact that one man may not feel able to, or may not dare to carry a part of his own insurance, does not render- it a discrimination to permit other more venturesome men to do so. In fact, coinsurance which compels all men to insure for the full value of their property is a clear discrim- ination against the venturesome man, and amounts to forcing property owners to allow insurance companies to take all of the risk, which when the insurance companies having the fixing of the rates compels the property owner to pay the full tax or do without insurance. But, insurance under modern conditions being a necessity, the real effect of insurance is to compel all property owners to pay full taxation to the insurance companies. Consequently, after careful consideration, I recommend that, while there should be stringent provisions to prevent over-insurance, coinsurance clauses should not be permitted, but that the insurance companies should be compelled to pay the total damage suffered on a risk up to the face of the policy. "valued policies." In connection with coinsurance comes the subject of a valued policy act. This is a provision compelling an insurance company to pay the face amount of the policy in case of a total loss, the value of 312 the property destroyed by fire being accepted without proof. The com- panies oppose such a provision of law as tending to foster arson, yet their position in this regard is inconsistent. One purpose of a valued policy act is to prevent overinsurance, it being presumed that, if a company knows it is to be held liable for the full amount of a policy, more care will be exercised in writing the insurance. However, the companies have found over-insurance very profitable to themselves and without a valued policy provision are permitted to receive a premium on an overinsured value of property and then scale the amount on payment of a loss. With the elimination of overinsurance, a valued policy act will not be necessary. FIRE PREVENTION. In addition to the elimination of overinsurance and consequent arson, which I have mentioned above as tending to prevent fires, there are certain other measures which would assist in reducing this tremendous annual loss to reasonable figures, such as those in European countries. Among these is the installation of automatic sprinklers for the protection not only of goods within buildings, but in the case of certain buildings in congested districts of great cities the installation of similar devices on the exterior of buildings, called "water curtains," which are pipes arranged so that when heated to a certain point they open the same as the automatic sprinkler heads on the interior of buildings. This permits a sheet of water to run down the outside of the building and is very effective, particularly when used in combination with window glass reinforced by wire netting to prevent buildings catching fire from adjacent fires. A striking example of the benefits of this was exhibited at the very recent fire in Salem, Mass., where a building protected in this way, both within and without, in the midst of a large fire, stored with inflammable material, remained standing. The water curtains on the outside operated and kept down the heat so that not only did the building not catch fire, but not a single sprinkler head on the inside opened. EDUCATION IN FIRE PREVENTION. Another important means of fire prevention is the education of the public and particularly of school children on this subject. Among the topics on which information could be profitably given are : danger from defective chimneys and stove pipes ; from defective electric, wir- ing; from iise of kerosene to start fires; from accumulations of leaves, rubbish, etc., and from bonfires of the same ; from the use of gasoline and illuminating gas ; from cigar and cigarette stubs ; from fire crack- ers, fire works, matches, etc. I believe that, since safety matches have become as cheap as any other kind, the sale of parlor matches, and, in fact, of all other kind of matches, excepting safety matches, should be prohibited. Information should also be given of the usefulness of proper light- ning rods for preventing fires from this cause, particularly on farm buildings. This is not said for the purpose of aiding professional lightning rod agents, who have so often swindled the people in the 213 past by selling them rods, usually worthless, at exorbitant prices. Better lightning protection than furnished by lightning rod agents can be provided at very small expense, and erected by anyone, in the form of a good galvanized iron or coppor wire cable nailed directly to the building extending two or thi-ee feet above the highest point and sunk at the bottom down to permanently moist earth. Scientists say that not only are glass or other insulators useless, but they are positively dis- advantageous. If the conductor is unbroken and extends into moist earth, there is no danger whatever that the electricity will leave it and strike into the building when fastened directly against the wall. If the conductor is broken, insulators will not save the building.' Information should be given as to the advantages of fireproof con- struction, or, where this is impossible from cost, of the best fire resist- ing material, paints, etc., and particularly of the best material and methods of roof construction for resisting fires. A considerable num- ber of fires originate in roofs, and, in conflagrations, the fire is nearly always carried by roofs being set on fire. CLAIM THAT INSURANCE MONOPOLY IS NECESSARY. The fire insurance companies strenously claim that their business can only be conducted by means of an agreement or combination for the purpose of making rates. They admit that the method is mon- opolistic, but justify this claim that it is absolutely necessary in fire insurance. They endeavor to disarm suspicion by using the harmless term of cooperation" instead of "trust," "agreement" or "combine." The facts in the case are that the insurance business in Illinois as at present conducted by the companies through "combines," which I have already described, is a monopoly of the most oppressive type. Under the terms of the existing understanding, inspections are made and rates fixed for all the companies through the device called the "Illinois Inspection Bureau." If the community of action stopped at this point there might be some truth in the claim that it was legitimate cooperation to save expense. But this is only a preliminary. The essential thing is the further agreement to maintain rates and the Stamping Bureaus, and other effective machinery for enforcing the rate agreement, which enables the "combine" to compel every member to observe these rates. The courts of Illinois have explicitly decided that an agreement or combination for the purpose of maintaining fire insurance rates is contrary to the laws of the State of Illinois. The insurance companies recognized the correctness of these decisions when they dropped their previous combination methods and attempted to evade these decisions by putting into operation the Illinois Inspection Bureau device and the secret understanding to enforce its rates instead of the previous open agreement to that effect. All other business in the State must be done subject to the antimonopoly laws of the State. Since courts have decided, and their decision still stands as the law of the State, that the •This subject is fully treated in Farmers' Bulletin No. 367, Lightning and Lightning Conductors, by Alfred J. Henry, issued by the United States Department of Agriculture, from which it can be obtained free; A brief pamphlet on this subject with practical directions is also published free of charge by the State Fire Marshal, Springfield, IlL I recommend every property owner to send for these and protect his buildings according to their directions. 314 antimonopoly provisions apply to the insurance business also, the insurance companies' demand, that they be allowed to continue their so-called cooperation, amounts to this : that they be permitted to con- tinue to violate the antimonopoly laws of the State. Of course* no reasonable person will claim that the insurance companies should have the privilege of violating the antimonopoly law, by any subterfuge, device or trick, whatever, and the companies do not dare to openly take this position themselves, and, therefore, falsely term their scheme "cooperation," because cooperation, in the correct use of the term, is not only a lawful, but a highly commendable thing. Leaving aside, for a moment, the entire illegality of what the com- panies are doing under the euphemistic name of cooperation, I desire to examine briefly the claims they make in favor of this alleged cooper- ation. These in brief are : That this is a greater economy to the com- panies in making schedules, inspecting and supervising risks and repressing incendiarism; that otherwise it would be impossible to regulate rates and they would be unstable and discriminatory. I will frankly admit that there would probably be some economy in having the inspection and schedules (which are estimates of relative fire hazards) made for all companies at one time, but it does not follow that it is best for the people that this should be done by a "combine" of the companies. In the first place far worse discrimination and fa- voritism are not only possible but are actually practiced at present by the "combine's" rate-making institution than would be possible by open competition, and the public is absolutely helpless against these things. There is no one to whom appeal can be made against them. Their inspection bureau possesses arbitrary and absolute power. In the second place, there is no protection whatever from exorbitant rates. The bureau's rates will inevitably reflect the desires of the companies for larger and larger profits, and while provisions for state regulation of these rates, similar to that imposed upon pubhc utilities, would help somewhat, still this process is slow and cumbersome. If insurance by private companies is to be continued, the best method of ratemaking is to have this done by a state commission, which will be more economical than their present arrangement, will be free from the discrimination and favoritism practiced at present, and, most important of all, will enable a thorough and scientific study of the whole subject to be made and reasonable maximum rates made in the fixing of which the people through their commission, will have something to say. The claim of the companies that under free competition rates are unstable and therefore discriminatory is wholly fallacious, and not made in good faith, but is a false a,ppeal to the people's just resentment against discrimination in order that the companies may be allowed to continue their "combine" by which they are able to extort excessive premiums. Discrimination is entirely unjust and should not be per- mitted in any form. It can not, however, be prevented even partially by permitting the companies to combine, except, perhaps, through sub- stitution by the companies of a still worse thing— equal extortion 215 levied on all instead of some being able to partially escape. Only direct state intervention can effectually prevent discrimination. The particular discrimination which they allege is liable to occur under free competition is that large insurers and keen business men can, by playing one company against the other, secure lower rates than smaller or less active competitors. This, if true, would be an evil, but will be absolutely done away with by either state-made rates or a system of state insurance, and can not be^ thoroughly eliminated by any other method. If the "combine" methods are permitted or legalized it is possible that some discrimination would he abolished, but it will not be by lowering the rates of the smaller insurers. It will be by raising the rates of the big insurers. This has already occurred to a considerable extent during the past few years in Illinois under the power usurped by the existing "combine" and with a further access of power through express recogftition of "combine" methods the process will be completed and the rates of everyone forced up to the highest point now exacted from any insurers, and the excessive and enormous profits of the "combine" companies still further enhanced. The reality of this process of forcing up rates is attested by numerous complaints on file in my office, from all parts of the State, of enormous raises of rates made since the Illinois Inspection Bureau went into operation in 1908. If this institution or -sooiething similar was legalized, the "combine" would find some means of neutralizing the only protection .which now remains to any of our citizens; that, is competition from the mutuals. Mutual insurance is impossible at the present time for a large part of property owners in this State. If it should, by some means, be rendered unavailable to all of them, then our citizens would be entirely at the mercy of the companies, and would either have to pay such rates as the insurance "combine" saw fit to dictate or do without insurance. But many can not do without, because they can not otherwise obtain credit to carry on their busi- ness. All the trusts and monopolies make practically similar defenses of economy and similar claims of disaster unless monopolies are per- mitted, etc., and they are as false and detrimental to public welfare in the insurance business as in any other business. In fact, since, as I have shown, the effect of the insurance monopoly is to increase instead of decrease fires, I believe that the insurance monopoly has a more damaging and dangerous influence on public welfare than other monopolies. MONOPOLY. Monopoly is the greatest evil of the modern industrial era. The general eflFect of monopoly on the welfare of the people can not be better summarized than in the words of President Woodrow Wil- son: "Private monopolies are indefensible and intolerable." It only remains to be considered whether the effect of the insurance "com- bine" is different and whether it should be legalized, while other monopolies are outlawed. The facts and considerations I have out- lined above refute such claims conclusively. The fire insurance ai6 liionopoly not only taxes the people more than twice as much as would be necessary to distribute the legitimate fire loss among the whole people instead of allowing- it to crush a few unfortunates, but actually increases the annual fire waste and loss of human life. Some monopolies in return for their exactions have given improved service to the public, but the effect of the fire insurance monopoly is to make natural conditions worse. There is a curious, inconsistency in the companies' position that they can not survive free competition because the fact is that, except in the matter of premium rates, the companies are and will continue to be in intense competition as to other things, particularly the com- mission paid to agents. There are two ways of increasing the busi- ness of a company. One is by reducing the rates to the public, the other is by increasing the commission to the agents. Just as soon as by combination the companies have gotten rid of competition in premium rates, then they begin competition for business by raising the commission to their agents. This has gone to an almost unbe- lievable extent. In Chicago the companies according to sworn state- ments made in examination by my department admitted they pay com- mission as high as 40 per cent on some lines. The insurance companies, can continue to do business while com< peting in premium rates just as well as they* can continue to do busi- ness while competing for local agents and other factors in their busi- ness. It is absurd and illogical for the companies to claim that in order to remain solvent they must be permitted to eliminate competi- tion as to premium rates while they continue in the most strenuous competition as to everything else in their business. This competition as to everything excepting rates means much useless, costly dupli- cation of officers, agencies, etc., which necessarily causes continually increasing expense to be added to the heavy burdens of the policy holders. They do not seek to avoid this, but only to escape compe- tition in rates which would tend to lighten the burdens of the policy- holders. If any business can be successfully operated only as a monop- oly, then it is time for the people, through their governmental insti- tutions, either to effectively control or to take over and themselves operate such business. Only by so doing, can they escape extortion and robbery and be able to enjoy the pleasures and benefits of modern civilization. The argument for monopoly in the fire insurance busi- ness is only the selfish plea of those who, having wrung enormous profits out of the necessities of the people, are fighting for permission to continue to do so. Their attitude is the same everywhere. Alglave says : (Assurance Contre L' Incendia, Service Public, En Allemagne, p. LIV.) "Let us not forget that they (the insurance companies) are not philanthropists, but dealers who seek to sell their merchandise at the highest prices that are possible." BENEFITS OF INSURANCE. In conclusion, I do not think it necessary to enter upon any ex- tended exposition or eulogy of the benefits of insurace if it is con- ducted on correct principles, and with the aim of benefiting the peo- 21'}' pie as a whole instead of affording monopolists a means of collecting tribute. Insurance is essentially an institution for expressing effec- tively under modem conditions the sympathy and aid of human fra- ternity. It is the visible and merciful embodiment of the spirit of brotherhood of all men. Adopting the words of a recent writer, we may consider this great institution says to mankind : "Fire and flood, lightning and tornado, will, unless my shield is over you, inevitably bring misfortune and disaster to many, but dis- miss your fears and anxiety and pursue your vocations with courage and perseverance, for, if these things should perchance be allotted to you by the inscrutable decrees of fate, nevertheless J will surely pro- tect you. Your riches and your happiness shall not be diminished, for I will replace your losses. Rely on me and the dangers of the air, the sea and the land shall cease to exist for you. Under my protection you shall live your allotted days in peace of mind, and when the final summons comes, as come it must to each, you shall depart consoled by the thought that your loved ones are not exposed to sudden dis- aster nor liable to the miseries of poverty and the pangs of hunger." Selfish and greedy men have seized and made a monopoly of this beneficient institution so that, to realize its benefits, the people are obliged to pay heavy tribute to them. This is a great wrong. It should not be possible for such a heavy price to be exacted by the mere middlemen who collect and dispense insurance. It should be conducted at cost, but this can only be done by the people themselves through their governmental institution, the State. SUMMARY. The important facts which stand out in bold relief as a general result of my investigation of the fire conditions in Illinois are: prem- ium rates, especially on dwellings, are excessive and discriminatory; Chicago being particularly subjected to insurance extortion; this is so because there exists three insurance "combines" in Illinois, which fix rates and prevent competition. An insurance "combine" is illegal and the courts in Illinois have so decided. The people of the State of Illinois, as shown by complaints continually received by this de- partment, are becoming aroused, and demand, and should have, im- mediate relief. Complete relief can only be secured by establishing a system of State fire insurance which will afford great, immediate reduction in rates and ultimately reduce rates to near to the European State insurance rates, which are only one-ninth of those in force here. The people of the State of Illinois are as much entitled to fire insur- ance at cost as the citizens of Switzerland, Germany, Norway, or New Zealand, and are as capable of carrying on a system of fire insurance as are the citizens of those nations. There is no constitutional or other reason, whatever, why Illinois should not enjoy the benefits of State fire insurance, except the clamor of the already enormously rich companies against giving up the "good thing" they have enjoyed in the past. When they entered into a monopolistic "combine" they forfeited any claim to consideration, and the people of the State of Illinois should take steps to provide themselves with fire insurance protection at cost, without any thought of the effect on the fire in- surance companies. CONTINUATION OF OUR EFFORTS FOR REFORM NECESSARY. It was at your direction that I began this investigation. You have carefully followed its progress, and continuously assisted with your advice and cooperation. You have manifested deep interest in fire insurance conditions existing in our State and their effect upon the public welfare, and the reform which is certain to be brought about in this business will only be the legitimate fruit of your courage and initiative. The results obtained and disclosures made by this inves- tigation show that your original apprehension was well founded that the citizens of Illinois were being charged excessive premium rates by the stock fire insurance corporations upon practically every class of property, and especially in the case of dwelling houses and flats. I also desire to express my sincere personal thanks for the cordial and efficient support which you have at all times given me in bring- ing to the surface the inner workings of the gigantic fire insurance "combine" or' "trust," which to-day either directly or indirectly lays an unnecessary burden upon every citizen of this State. I trust you may continue your interest and lend your influence for fire insurance reform, which can only be secured by a thorough revision of the fire insurance laws of Illinois. The methods and practices of the present "combine" must be replaced by some fair and equitable system of fire insurance, and, when established, its successful operation in the face of the bitter fight the "combine" is certain to make will require a continuation of your strong support and favorable influence. I wish to say further, that I am greatly indebted to the Illinois Press Asosciation, and particularly their insurance committee, for the cordial support and assistance they have given me in this investigation, and confidently rely upon their further efforts in disseminating in- formation and educating the people for the achievement of this re- form, through safe and proper legislation. The agitation for reform in the insurance business has just started. The immense majority of the citizens of the State of Illinois are ignorant of the true facts in the case. They feel that they are suffer- ing from a great burden, but they do not know that this is mostly for the benefit of monopolists. The people must investigate the facts in the case: they must educate themselves and take an intelligent and intense interest in the matter. Under our Democratic system of government, relief from oppressive conditions must come from the people themselves, and it is to contribute to their education and en- lightenment as to fire insurance and promote their welfare and hap- piness by showing them how their present indefensible insurance burdens may be lightened that I submit the facts and suggestions of this report. Respectfully, RuFus M. Potts, November 19, 1914. Insurance Superintendent. Note. — Since the filing of this report, the companies have at last, on November 23, 1914, presented an answer to my preliminary report made to your excellency on May 6, 1914. In this answer, the companies deny the existence of any combination for the purpose of controlling Are insurance rates ; they disclaim responsibility for the operations of the Chicago Board of Underwriters, alleging that this is an or- ganization of Chicago local agents ; and also claim that they are not able to grant a reduction in the premium rates. Their allegations all relate to matters of fact which are fully covered with ample evidence to substantiate my statement thereof In this report Nothing contained in their answer warT.o.ito ~.- >- — ji^-i — i- the least the conclusions and — — ^ 219 LEGISLATIVE RECOMMENDATIONS TO FIFTIETH GENERAL ASSEMBLY FOR 1917 SESSION. State of Illinois, Insurance Department. Springfield, November 28, ipi6- Hon. Edward F. Dunne, Governor, State of Illinois. Dear Sir : In accordance with your request, I herewith submit a brief partial resume of the accompHshments of the insurance depart- ment under the present administration, with my recommendations as to legislation I believe to be necessary that this department may better effect its purpose. In general, the administration of the insurance department con- cerns the licensing of insurance corporations of this and other states under the respective statvites; collection of taxes and fees provided by law; holding in trust securities deposited with this department by insurance companies; the investigation and examination of the financial condition and business affairs and methods of isurance com- panies ; issuance of licenses to insurance agents ; valuation of policies of legal reserve life insurance companies according to the legal stand- ard ; and general supervision, so far as may be possible by the limita- tions of existing law, over the entire business of insurance in Illi- nois, in order to safeguard the interests of the insuring public of this State, by procuring for our citizens solvent insurance institutions and ju.'st and honorable treatment in the settlement of losses. importance and growth of insurance business. From a financial standpoint the insurance business is one- of the foremost in this country. During the year 1915, the total income of legal reserve life insurance companies in this country, according to a standard insurance publication, was $1,042,963,534. Fire insurance companies in this country during 1915 had an income of over $450,- 000,000. Casualty, surety and miscellaneous companies last year had an income of $175,000,000, whereas ten years ago the income of this class of companies was but $63,000,000. These figures are of greater importance when it is noticed that in the fire insurance business less than one-half the great sum mentioned. above is returned to policy- holders for losses. In the casualty, surety and miscellaneous section last year, the total income of the companies was $175,000,000; pay- ments to policyholders amounted to $75,000,000; while dividends and expenses of management including taxes, were $79,800,000. These figures alone command our earnest and serious attention, a considera- tion which I fully believe has been woefully neglected in this State in years gone by. 220 Illinois business. On December 31, 1915, there were in force in Illinois 752,539 policies of ordinary life insurance in legal reserve companies, an in- crease of nearly 50,000 over the preceding year. The amount of ordi- nary life insurance in force increased over $81,950,000 during 1915, and the amount of Illinois premiums paid in 1915 exceeded the pre- ceding year by $2,700,000. At the beginning of this administration, Illinois legal reserve life companies had insurance in force of $307,1-35,949 and at the close of 1915, our companies had insurance in force of $391,145,596. Dur- ing the same period the Illinois assessment life associations increased their insurance in force from $81,230,575 to $111,490,343. The net value or policy reserves of our legal reserve life companies have in- creased from $29,600,000 on December 31, 1912, to over $39,360,000 at the close of 1915. A most noticeable increase also occurred in business other than fire or life, commonly classed as "casualty, surety and miscellaneous." The income of such, companies licensed in Illinois increased from $12,846,000 in 1913 to $15,055,000 in 1915. The Illinois companies under this class in 1912 had a premium income of $3,557,033 and in 1915 their income had nearly doubled, $6,951,506. On January 1, 1913, the insurance department held in trust for policyholders of insurance companies, securities valued at $12,977,859, and during the ensuing years the deposits required by law have in- creased to $17,323,390 (November 18, 1916). These figures show the extraordinary development of Illinois companies and emphasize the necessity for careful attention to legis- lative safeguards in order that their progress may be safe as well as rapid. FINANCIAL. During the year 1915, the receipts of this department from fees and taxes provided by law amounted to $795,836.84, and $805,000 is a conservative estimate for 1916. During the last year of the preced- ing administration, the income was $665,066. There is no tax on insurance premiums fixed by our laws except a tax of % of 1% on fire premiums for the maintenance of the fire marshal's department. However, under the retaliatory clauses in our (Various statutes, we collect the same taxes and fees from com- panies of other states as such other states require of Illinois compan- ies. Although the aggregate of receipts is large, yet in proportion to the volume of business in this State, our taxes are much less than in most states. Since there are no premium taxes except retaliatory- taxes, it is obvious that Illinois has been extremely liberal to the insur- ance companies of other states. The entire expense of maintaining this department, making all investigations and prosecutions, has con- sumed in past years less than 10 per cent of the annual income. STATE SUPERVISION. State supervision of insurance began in Illinois . with the enact- ment of laws concerning fire and life insurance in 1869, the Auditor 221 of Public Accounts being the supervising official. At every regualr session of the General Assembly since that time insurance laws have been passed, few being comprehensive or general in their scope, but for the most part amendments to existing acts to meet some special need or desire. The natural result of this is that to-day the insurance laws are exceedingly difficult to construe, uncertain and conflicting in their provisions and with little uniformity in the regulations covering the different classes of companies. In 1893 the Legislature created a separate insurance department. The act creating this department does not define the powers of the insurance superintendent, but leaves the supervision of insurance entirely dependent upon the provisions of the several acts. To show the inconsistency of this course, I would point out that certain acts now in force provide for no supervision whatever and since the department Act is lacking 'in this respect, an extremely faulty con- dition is presented. I am further of the opinion that practically every insurance statute in force to-day has been enacted at the behest of insurance interests for legislation to cover certain phases of their business to meet. their needs, and State supervisory power has apparently been limited as much as possible. It should be noticeable here that this present supervision has nothing to do with the relation of cost of insurance tp the amount of insurance benefits returned, or the efficiency of any insurance system, so far as any positive legal enactment may be concerned. The insurance business does not primarily involve the investment of money in a physical and tangible property, but is confined to the handling of funds of the people in such a way as to make the public vitally interested in the conduct of this business ; and to make proper legislation, the basis of any effective or consistent supervision, a mat- ter of sufficient importance to demand the most careful attention of the Administration and the Legislature. Insurance is a method of distributing financial losses so that the burden may fall upon the entire group of insurers, instead of the unfortunate individual, and in the conduct of this quasi public busi- ness, where this commercial and social necessity is used by private interests for the production of profit, a clearly defined duty is imposed upon the State to safeguard and protect the welfare of its citizens by a system of strict and careful regulation and supervision. I, therefore, believe that it is time that the State of Illinois should enact some progressive insurance legislation, constructive in its nature, with a view of permitting the extension of the right sort of insurance protection to our citizens and property owners, and that our laws should not be laws of corporate detail ; but laws looking to the funda- mentals of insurance and the widest and wisest distribution of efficient insurance protection. ADMINISTRATION OF DEPARTMENT. (1) Upon taking charge of this department, I adopted a policy of giving careful attention to complaints charging fraudulent or un- 222 just business methods on the part of insurance companies. Every effort has been made within the power of this office to see that every insurance company pays its legitimate losses without unnecessary de- lay and without driving hard bargains. The power of the insurance superintendent in this regard, so far as the law is concerned, amounts to practically nothing and good results obtained by me have been attained only because I have chosen to use the power of this depart- ment along this line. The insurance department has no legally im- posed duty in this matter and from the view point of public policy I believe this extremely unfortunate. My policy with regard to complaints of policyholders has become widely understood throughout the State and has resulted in a great benefit, both through the remedying of individual injustices and from the fact that it has resulted in many companies ceasing objectionable business practices. Furthermore of great importance, I have conducted investiga- tions into the conditions existing in practically every form of insur- ance in this State, for the purpose of informing myself as to whether or not the business was being conducted in the interest of the public and whether or not its plan was of such a nature as to meet the pub- lic needs. As a result of these investigations I am proposing some marked remedial legislation in my legislative recommendations follow- ing, which I believe to be an absolute necessity in this State, both from the standpoint of the insuring organizations and the people. (2) The increase in the current work caused by the growth of the insurance business and the present policy of strict investigation of any violation of insurance law and the most careful and rigid ex- amination of the acts and doings of insurance companies, has created a need for additional help in practically every division of this depart- ment. Without the full help required to meet the necessities, it is impossible for the heads of departmental divisions to devote proper time, or practically any time, to constructive work. Also, .with the enactment of laws requested, if the department is to properly do the things it is required by law to do there should be no barriers presented by lack of help. In the past, the defeat of neces- sary appropriations for assistants, such as investigators and those doing like important work, has been as effective a victory for illegiti- mate insurance institutions, as the defeat of the law providing for the investigators, would have been. There is required in this de- partment for the clerical duties alone to meet the requirements of present laws, at least eight or. ten additional clerks. During the past years the working force has not been materially increased, but this is now absolutely- necessary. It may be stated, however, that although the current work has greatly increased, yet many changes in the way of efficiency have been introduced which have materially relieved the situation. During my administration also, the regular office hours have been lengthened one hour and thirty minutes each day. I believe these things should be brought to the attention of the Legislature. It is certainly a public misfortune that a department such as this should find itself without available resources to cope with 223 the emergencies that are continually arising, demanding immediate attention by competent and trained men. SPECIAL INVESTIGATIONS. 1. Fire Insurance. 3. Social Insurance. 3. Industrial Life Insurance. 4. Industrial Accident and Health Insurance. 5. Unauthorized Companies. 6. Promotion Schemes, or Sale of Stock of Companies in process of Organization. (i) Fire Insurance. Having become convinced by my investigation into fire insurance rates and conditions in Illinois that several illegal combinations existed for the purpose of fixing and maintaining fire insurance rates in this State, I have taken steps to have these matters brought before the courts for adjudication. My investigations showed that fire insurance rates in the whole of the State, outside of Cook County, were controlled by two illegal organizations or combines of insurance companies. One of these is known as the "union," sometimes called the "Western Union," and comprises a majority of the fire insurance companies doing business in the State outside of Cook County. This combine was the first one to be organized. Somewhat later, a rival organization, known as the "Western Bureau," was created by companies not members of the Western Union. There was considerable rivalry for a number of years, but finally a combine of combines was effected and an agree- ment reached between the two as to the rates that should be charged. Since that time the same rates have been charged by the members of both combines, and there was created a so-called "governing com- mittee," with members from both, to which was referred all matters of differences between the two organizations as to rates, etc. This committee also had charge of compelling the individual members of the combines to observe the rates agreed upon, which function they have exercised up to the present time, and still exercise. Owing to this unlawful condition of fire insurance affairs, I began in the Circuit Court of Sangamon County, an injunction suit against all of the companies, 133 in number, as well as many of their officers and agents who Were concerned in the organization and operation of these illegal combines. Following their usual tac- tics, the insurance companies have resorted to every means of de- lay, but the demurrer which they filed has been decided against them, and the suit is now awaiting the appointment of a special master and the taking of testimony. There had grown up in the fire insurance business, an illegal method of carrying on such business through the operation of so- called "underwriters' agencies" or "annexes." These were unin- corporated organizations which performed all the functions of in- surance companies, but which by secret agreement had their policies signed and guaranteed by some regularly licensed insur- 224: ance company or companies. Their illegitimate method of opera- tion having been called to my attention, after giving a hearing to those engaged in the practice w^hich permitted them to present whatever evidence and arguments there might be in their favor, I issued a ruling against their legality, in which it was stated that I would make application to the courts for adjudication of their right to conduct a fire insurance business in that manner. A large ma- jority of the companies, however, did not wait until such proceed- ings were begun, but rushed into the United States Court with a bill to enjoin me from presenting the matter to the courts of Illi- nois. After having thus halted any action by the courts of Illi- nois, the insurance companies have not pushed the case to con- clusion so that it is still pending in the United States Court. There were, however, a few companies maintaining under- writers' annexes which did not join in the United States Court suit. I consequently began suits against these in the Circuit Court of Sangamon County where they are still pending. In Cook County, which co;nprises about one-half of the popu- lation and more than one-half of the insurable property in Illi- nois, the insurance rates have been, for many years, absolutely fixed and controlled by the so-called "Chicago Board of Under- writers of Chicago." This organization has a charter granted by a special act of the Legislature, February 22, 1861. It claims that this charter gives it the right to fix and control insurance rates in Cook County, and it has made use of this "power" in the most oppressive manner, so that the rates in Chicago are higher than in any other city in the United States where the conditions are similar. For instance — the dwelling house rates are so excessive that less than one-third of the amounts charged as premiums are returned to the policyhold- ers in payment for losses. As this was an organization the scope of operation of which was limited to Cook County, I presented the matter to Hon. MaClay Hoyne, State's attorney of Cook County, and he has begun a quo warranto suit against the Chicago Board of Underwrit- ers, demanding its dissolution because it has abused and perverted its charter rights and created an insurance monopoly in Cook County. This suit is pending before the Circuit Court of Cook County. The statutes of the State of Illinois relating to. fire insurance, sec- tion 21 of the Act of May 35, 1881, provide that the insurance super- intendent shall make a classification of all the insurable property in this State in not less than four classes, and require annual reports of the Illinois experience of the fire insurance companies in each class. There has previously been only a perfunctory execution of this law, the fire insurance risks being divided into four classes in such a man- ner that the information derived from the annual classification reports was of no value whatever. It was clear to everyone conversant with the facts that the companies were charging excessive and discrimina- tory rates in this State on many kinds, of property, but in the absence of specific information it was very difficult to point out just where these extortions were or to prove them. To remedy this defect, I de- termined to adopt a complete and detailed classification of all fire 225 risks in this State. The National Board of Fire Underwriters had at that time just adopted and promulgated a classification of fire insurance risks which was in use for the purpose of keeping their records by a large majority of the fire insurance companies doing busi- ness in this State. In order to avoid confusion and also to avoid causing the companies extra labor, I adopted this classification which separates all insurable property into about four hundred classes. It is also recognized by everyone conveirsant with the fire insur- ance business, that the risk or hazard of destruction by fire on a given kind of property varies in different cities according to the fire protec- tion and other factors. The National Board of Fire Underwriters had also made a classification of the cities of the State into ten grades, with reference to fire protection. I also adopted this classification of the cities for the same reason that I adopted the same organization's classification of risks, and have required that the companies report their experience on each class of risk in each grade of city and also on farm risks, separately. This report was first required of the 1914 business of the companies, but there was considerable reluctance and resistance to furnishing this, and the returns for that year are not satisfactory. For the year 1915, however, the returns have been complete and the results which have been published as a special report show the existence of very great injustices and discriminations in fire insurance rates which are fully explained in the introduction to the report compiled from the reports of the companies. From the ex- perience gained in the collection of the 1914 and 1915 business, I have worked out a new plan of report blank and detailed regulations for making the report which will conduce greatly to the prompt and accurate compilation of these reports by the companies in the future. Although the results already obtained are sufficient to show the neces- sity of reform in a great many classes, this compilation should be kept up continuously and should ultimately result in legislation which will relieve property owners of this State from the unjust exactions and merciless extortions practiced upon them by the fire insurance com- bines. The above describes generally the legal steps that have been taken to bring about fire insurance reform in Illinois. I believe, however, that the results of the vigorous campaign for this reform already evident wiU also be of interest. At your direction early in 1914, 1 began an extensive investigation into the business of fire insurance. In reports made to your ex- cellency on May 6 and November 19, 1914, respectively, it was shown by unquestioned statistics that fire insurance rates were unreasonable and business practices oppressive. A bill was prepared and presented to the House of Representatives at the 1915 session of the General Assembly, providing for the creation of an insurance commission em- powered to supervise and control fire insurance rates and practices. This law received great support from property owners and the press of this State, but the House Insurance Committee, after weeks of hearings, failed to take any action. —15 P S 236 In spite of this failure to secure reform legislation, the agitation and disclosures of unjust rates brought such a pressure of public opin- ion to bear upon the insurance combines in Illinois that they have been compelled to grant certain reductions in rates, particularly in Chicago. Examples of these reductions are shown by the following table of rates, which went into effect on September 23, 1915: Old rate. Buildings and contents New rate. combined. Buildings — Contents. District 1 — Brick, stone, tile or concrete dwell- ings, with noncombustible roofs .27 .18 .198 Shingle frame dwellings with noncombustible roofs, detached, not less than 50 feet in all directions .45 .288 .317 .Shingle frame dwellings, detached, not less than 50 feet in all directions, with combustible roof .50 .32 .352 Frame dwellings, shingle roof, detached not less than 25 feet in aU directions .54 .36 .396 Brick flats or apartment houses, not exceeding three stories, noncombustible roof .36 .234 .257 Brick flats or apartment houses, not exceeding three stories, shingle or other combustible roof .40 .286 .315 In addition to the reductions accomplished in various localities, a most important result of this strong fight was the prevention of a proposed raise in Illinois fire insurance rates that would have involved an arbitrary flat increase of 25 per cent throughout the entire State on many important classes, such as dwelling houses in cities, small mercantile buildings, farm buildings, and contents. When the fight was begun, the fire insurance combine had decreed that each property owner should pay 4 annual premiums for a 5-year policy, and 3J^ premiums for 3 years, instead of the former rule of 3 premiums for 5 years, and 2 for 3. This increase was decreed for the entire Middle West and was actually put into effect in many states, but in Illinois the companies did not dare to increase the rates in this manner under the conditions prevailing. Furthermore, as an effective aid to the public, this department has fostered competition by strong and well supervised mutual companies and inter-insurance exchanges. These organizations have not only brought reduced rates to their own policyholders, but their competi- tion has worked great benefit to the public through its effect on the "combine" rates. These organizations have shown a great develop- ment during this administration. Along with legislation hereinafter recommended governing fire insurance rates, constructive legislation is also being recommended so as to permit the safe and satisfactory growth and operation of these mutual organizations. (2) Welfare (Social) Insurance. One of the most important social and economic movements of recent times has been that toward the establishment of systems of social or welfare insurance. Welfare insurance is a plan for making provision against the economic losses occurring to wage earners and other persons of moderate resources and their dependents, resulting from accident, sickness, unemployment, old age and premature death, by means of a fund accumulated from regular contributions, either voluntary or compulsory from the assured, the employee and the state, 227 or one or more of them, out of which indemnity for such losses is paid, and by this means distribute such losses throughout the entire community, state or nation covered by this insurance, instead of allow- ing the losses to crush the unfortunate individuals to whom they occur, and thus maintain each individual member of the community, state or nation in a condition of well-being. One branch of this insurance, workmen's compensation, is now, by virtue of a law passed by the Legislature in 1911, in full operation in this State. Proposals for the adoption of other branches of welfare insurance, and par- ticularly health insurance, have been made. Consequently, beginning in 1915, I have conducted a thorough investigation into the questions of welfare insurance. This has been carried on by me nominally as chairman of the Social Insurance Committee of the National Conven- tion of Insurance Commissioners, which committee was appointed in December, 1915. I have prepared an exhaustive report to said con- vention on all branches of welfare insurance, but this has not yet been printed. I have also appeared by special request before the labor committee of the United States House of Representatives in the hear- ing held by that committee on the resolutien for the appointment of a national commission to investigate and report on the subject of social insurance. Besides this, I have been invited to address a number of important societies in relation to different branches of welfare insur- ance, among others the American Academy of Medicine, at its annual meeting in Detroit, June 9, 1916, on unemployment insurance; The National Convention of Insurance Commissioners at their meeting September 28, 1916, at Richmond, Virginia, on the general subject of welfare insurance; the conference on social insurance, December 5, to 9, 1916, Washington, D. C, called by the International Association of Industrial Accident Boards and Commissions, on health insurance; and also the American Association for Labor Legislation at Columbus, Ohio, on December 28, 1916, at its annual conference. I am reliably informed that bills for creating systems of health insurance will be presented at the next session of the Illinois General Assembly, as well as in all of the other important industrial states, and I am glad to be able to present the results of my investigation for the information of the General Assembly on this very important sub- ject, which is set forth in a separate document. (3) Special Investigation on Industrial Life Insurance. I have also had occasion to call for special reports and make a special investigation into the results obtained by the life insurance companies conducting their business on what is known as the "indus- trial" plan. This plan of insurance is sought chiefly by industrial work- ers in an eflfort to obtain as much protection as possible for their dependents, through the payment of small weekly or monthly premi- ums. The results of my investigation show that the proportion of the premiums collected, taken by the insurance companies writing this kind of business for acquisition and administrative costs and in exor- bitant profits, is excessively high and clearly beyond all justification. It is the duty'of the State to see that insurance for industrial workers is provided at the lowest possible cost and brought within the reach 228 of the great masses of our people who are in serious need of this kind of insurance, and who can only carry same through the payment of small weekly or monthly premiums. I therefore, urge legislation that will bring this protection to these people in reasonable amounts and without oppression. (4) Industrial Health and Accident Insurance. I have also conducted a similar exafnination into the industrial health and accident insurance business and find conditions in this business comparable to that discovered as mentioned above in indus- trial life insurance. The dues are also collected weekly and from the same classes of the community as industrial life insurance, and the same excessive and unreasonable rates are charged. Reports have been required from the companies transacting this business, and the information secured is now being compiled. A report thereon will be completed within a very short time. (5) Unauthorized Companies.. I have sent investigators to various sections of the State to report on the practices of insurance agents, especially prevalent in the southern portion, of writing insurance in unlicensed fire insurance companies. Particularly where a considerable portion of the population is of foreign extraction, these illegitimate agents have operated extensively. In certain instances, these men have not only issued policies in wildcat companies, having no stability, but they have in addition made no report of premiums to such companies in which policies were written. It constitutes only a scheme to defraud. The fire insurance law provides that every fire insurance agent •shall have a certificate from this department showing that the com- pany he represents is licensed. The penalty for failure to hold such a license is $500, which, however, must be collected by a civil action rather than criminal, and there is no criminal penalty whatever pro- vided for the offense. The representation by an agent of an unauthor- ized company should be made a misdemeanor. This State has a law commonly called "The Surplus Line Law," the expressed purpose of which was originally to permit property owners to secure insurance in outside companies where duly licensed companies would not furnish protection. This law provides that an agent may procure a license from this department permitting him to act as agent to procure insurance in unauthorized fire companies. The law requires that he shall file an affidavit within thirty days after busi- ness is written, stating that he was unable to secure the insurance in licensed companies. He pays a tax of 2 per cent on premiums of policies so written. The company in which the insurance is placed meets no requirements, financial or otherwise. Most of the unlicensed companies accepting "surplus lines" business are companies which have been unable to meet the requirements for license. The law does not properly safeguard this business. 229 An investigation made of this business, as conducted under the present law, revealed a startling condition of affairs, which demands immediate legislative attention. Every possible restriction should be placed upon the writing of business in unauthorized companies and give authorized companies every opportunity to secure any such open business. (6) Promotion Schemes, or Sale of Stock in Companies in Process of Organisation. One important phase of the insurance business which has been utterly disregarded and neglected by Illinois insurance legislation, and which is the cause of an annual loss of many thousands of dollars to our citizens, is that of the sale of stock in insurance companies in process of organization. During my administration as insurance superintendent, this de- partment has received a great number of letters from citizens of this and other states inquiring as to concerns no longer in existence, and detailing stories of fraud and imposition by insurance stock salesmen. The insurance business offers a splendid field for investment of money. The nature of the business and State supervision over funds of insurance companies, combined with the financial profits of old established companies, easily permit the deception of the uninformed investor. Misrepresentation in the sale of stock seems to be the rule rather than the exception, and the Insurance Superintendent is denied all right of supervision during the promotion or organization period. Our laws provide that incorporators may file a charter with the insurance department, and if this charter is technically sufficient, the incorporators may begin to take subscriptions to the capital stock. The insurance department has no supervision over the promoters until the company is ready to begin business. An examination is then made to see that the capital is fully paid. However, if the company never completes its sale of capital stock, and the records show that the greater proportion of them do not, those who have subscribed and paid for all or a part of their stock, have no redress, because the pro- moters have either disappeared or are financially irresponsible. The law provides no limitation as to commissions or expenses which the organizers may take for the sale of stock. The profes- sional promoters may p£y themselves whatever they like. In many cases even where the organization of a company was accomplished, it. began business with the heavy handicap of such excessive organiza- tion expenses that it could never succeed. In an investigation just completed, in the case of two companies, it was found that 60 per cent of the money received on subscriptions to capital stock had been consumed by the promoters. A great mass of detail could be presented, but I will only say that an investigation made of the 25 companies in which stock is being sold at this time, reveals a condition demanding the immediate enact- ment of a law, providing complete and strict supervision over insur- ance promotions, including a limitation of the promotion expense based upon a percentage of the original subscription. Copy of all stock selling contracts and like documents should also be submitted 230 to this department and approved, and examination at frequent inter- vals required. CASUALTY INSURANCE. The business of casualty insurance is rapidly falling into the hands of monopoly. The trend is toward the same condition now so marked in the fire insurance business. It may be true that coopera- tion of insurance interests in this business is necessary because of certain conditions, but we may not expect that a combination of in- surance companies controlling rates, commissions and business poli- cies will carefully conserve the public interest in their secret agree- ments. Our own Illinois companies need our protection at this time, to prevent their absorption by the great and aggressive eastern insti- tutions. The extremely objectionable condition now prevailing in the fire insurance business is the result of negligence on the part of the State in permitting combination to go on for years unrestrained and unsupervised. Therefore, I believe that the casualty business demands legisla- tive attention in order to preserve the smaller institutions, mutuals and inter-insurers, the very existence of which is threatened by the great monopolistic combinations, and to conserve and encourage such proper competition as will protect the public from extortionate rates. Then, if competition is believed impossible or ineffective, the State should be given power to pass upon the reasonableness of rates and supervise all business practices. LEGISLATIVE RECOMMENDATIONS. I respectfully recommend the enactment of proper legislation covering the following matters. Certain of these recommendations have already been referred to in this communication, but are repeated so that the specific recommendations may be more readily referred to. First. (a) The creation, as a division of the insurance department, of a commission consisting of three members appointed by the Governor. This commission should be given general control and supervision over all fire insurance business, and should be required to examine into the methods, practices and agencies thereof, and also to prepare a complete classification of fire risks in the State, and further of the cities of the State with reference to fire protection, and' accumulate full statistics and other information as to the percentage of loss on each class of risks in the State and in each class of cities, counties, or other administrative divisions of the State. (b) It should be declared by law that fire insurance premium rates must be just and reasonable, taking into account the varying hazards and other conditions on different classes and locations of risks. The fire insurance commission should be given full power and control over premium rates and business practices of the companies. ' A right of appeal should be given from any ordef of said commission as to rates or other matters to the Circuit Court of Sangamon County, with an appeal therefrom direct to the Supreme Court. 331 (c) There should be a stringent prohibition against fire insur- ance companies becoming parties to any agreement, combination, trust or other scheme for the purpose of fixing, controlling or main- taining fire insurance rates. (d) Said commission should be required to prepare a standard form or forms of policies for use by all insurers, and these should contain a detailed analysis or itemization of the various charges which go to make up the complete rate on each class of risks, in order that the insurer may know what rate reductions he can obtain by re- pairing or improving his property. (e) Companies should be prohibited from cancelling insurance policies unless there have been material misrepresentations in the ap- plication, or there has since occurred a material change in the hazard therein, or there exists some other substantial reason. (/) Insurance for a greater sum than 85 per cent of the value of the property should be prohibited. (g) The issuance of policies should be prohibited excepting on written application of the owner or his agent, comprising a descrip- tion of the property countersigned by the agent of the company. Making material misrepresentations in applications for insurance^ should be punished as a criminal offense. {h) The operation of so-called "underwriter agencies," or de- partments, should be prohibited. Insurance companies should be permitted to do business only in their true corporate names. (i) Provision should be made for the collection and dissemina- tion of information on the subject of fire prevention, through the publication of a complete report, giving full details and particulars as to the best means of fire prevention, for free distribution to all citizens of this State, and use of the same as a textbook in all schools. Adequate instruction in fire prevention should be compulsory in all schools and colleges supported by taxation. (j) The enactment of an agent's qualification law, providing proper qualifications for insurance agents, and containing a clause prohibiting any. discrimination in the issuance of licenses; and also a further provision that if any insurance agent shall collect premiums or other money belonging to an insurance company or an insurer, and neglects and refuses to deliver the same to the company or insured entitled thereto, he shall, in addition to having his license revoked, be deemed guilty of larceny, and punished accordingly, notwithstanding that he may be entitled to receive or retain a part of such premium or other money as his compensation or commission. (k) The conducting of insurance business should be confined to agents resident in the State of Illinois ; and also provisions regulating brokers and public adjusters should be enacted. (l) In order to bring more forcibly to the attention of the public the present rule of law in this State as established by the Supreme Court in the case of Nail v. Taylor, 247 111., 580, viz : that any person or corporation is liable for damages resulting from fires which are in consequence of, or spread because of, the negligence of such person or corporation, and make this rule a matter of common knowledge, I S32 recommend that an explicit and detailed statement of the same be enacted as a statutory provision. (Bill incorporating the above is attached hereto.) Second. Legislation is needed concerning casualty insurance business, as noted above. The specific policy of this legislation has been consid- ered, but I am not prepared at this moment to submit recommenda- tions in full detail. This will be done at the earliest possible moment. Tlwrd. One State department should cover all matters pertaining to the business of insurance. The State Industrial Board and the State Fire Marshal's office should become associated with the insurance department. The work of these departments come clearly within the general purposes of the department of insurance, and are so closely related to the duties imposed by law upon the insurance superinten- dent concerning general insurance matters, that they can be more eco- nomically and effectively administered with the insurance department than independently. J'ourth. Under this administration, fraternal insurance has received every attention possible in order that it might most efficiently serve the public. This kind of insurance has always been closest to the public and a most serviceable method of meeting personal misfortunes. It deserves the aid of the State. Our present laws should be so amended as to further the progress of fraternal insurance, prevent its commer- cialization, and protect the public against exploitation of this system by individuals seeking only their personal profit. A specific law will be submitted at the earliest moment. I am of the opinion, following careful consideration, that fra- ternal societies are entitled to provide whole family protection, or protection to minors. This is clearly authorized by decisions of the Supreme Court of this State. I beUeve it to be a great need of our people, particularly those in moderate circumstances, as providing a means of furnishing funeral and sick benefits on the lives of children. The high cost of industrial insurance, as carried on by stock com- panies, makes some such legislation necessary. Accordingly, I at- tach to this communication a copy of recent ruling made by me show- ing the basis of this opinion, together with a bill which I believe will provide a satisfactory method of operation for a system of whole family protection. Fifth. The importance and growth of the movement toward the estab- lishment of systems of welfare insurance in this cou'.itry have previ- ously been referred to in this communication. It is certain that leg- islation on this subject will be introduced in the coming session of the Legislature. I recommend that a legislative commission be created to make a thorough investigation into this subject, and its full report to be made the basis for proper legislation. 233 Sixth. I This State has no flat or general tax on the premiums of insur- ance companies, except a tax of one-fourth of 1 per cent on fire premi- ums for the maintenance of Fire Marshal's department. Any pre- mium taxes collected are based upon the retaliatory clause of our various statutes, under which we are required to collect the same taxes from companies of other states as such other states require of Illinois companies. We find, however, that those eastern states which are the great insurance centers require no premium taxes and, there- fore, their companies operate here without paying any minimum State tax. This system is extremely inequitable, and favors the big com- panies. The' Fire Insurance Law provides that municipalities may collect taxes for local purposes of not to exceed 2 per cent of the premiums. The State should place a minimum tax on the premium income of insurance companies, giving these companies credit in the payment of State taxes for any amounts which may have been paid to municipali- ties. A law providing a 2 per cent tax on premium income of insur- ance companies, enacted in this State some years ago, was held to be unconstitutiortal because it endeavored to relieve the companies of cer- tain constitutional taxes. The system here recommended is that the State tax be a minimum amount, which the companies must pay either to the State or to municipalities. Bill for this purpose is being pre- pared and will be submitted at the earliest possible moment. Seventh. The operation of assessment insurance under the present system is faulty and unsatisfactory and demands remedial legislation. Two plans of assessment insurance are in use; one providing for assess- ments to pay current obligations; and the other providing for a so- called stipulated premium, with a clause reserving the right to increase the rate if necessary. In the first instance, the burden of payment increases as the members grow older and deaths are more frequent; and in the second instance, the absence of any legal standard renders uncertain the accumulation of sufficient reserve. Provision should be made for more strict supervision over assessment associations, fixing a legal standard of solvency, and limiting salaries of officers and. expenses of management. Eighth. There exist at present a number of small associations of various kinds for the purpose of providing annuities and other benefits for their members, but owing to the comparatively small membership of each association, lack of technical knowledge of the insurance business, difficulty of making safe and profitable investments of small funds, high expenses, and other causes, these associations have not been able to accomplish their full purpose. Their aim is a worthy one and in line with advanced doctrines of social solidarity and they should be encouraged and aided in every legitimate way. This plan would be very useful to associations of ministers, teachers and other profes- sions, as well as to farmers and labor unions, and all similar organiza- 234 tions. Such associations are a direct benefit to the State by providing for the care of its citizens when rendered helpless by accident, sick- ness or old age, for otherwise there is the possibility that they might become direct burdens upon the State. The truest charity is that which assists people to provide and care for themselves. Consequently, the State is not only entirely justified but fails in its plain duty if it does not create means whereby the funds of such associations may be col- lected, invested and disbursed by the State without any charge what- ever to the members on plans technically and scientifically correct. Explicit provisions should be enacted so that committees or boards representing different associations would have the right at all times to examine into details of the receipts, investments and disbursements of the funds. Therefore, I recommend that a law be enacted making provisions for carrying out the above purposes. Ninth. Inter-insurance is a highly meritorious system by which citizens and property owners are enabled to secure insurance protection against financial loss by fire or other casualty, at cost. This plan. of protection has passed the experimental stage but the present laws in force in Illinois, relative to inter-insurance organizations, are insufficient, and do not serve the purpose for which they were enacted. I recommend that a complete law be enacted providing for adequate supervision and regulation, and permitting inter-insurance against all risks which may legally be the subject of insurance, except life, personal accident and health. Tenth. Although recognized and authorized by law, there is little super- vision over Lloyd's associations, and, these being unincorporated con- cerns operated for profit, I believe that a deposit should be made by them for the security of policyholders and as a guarantee that they will fulfill their obligations. Eleventh. There are at present various organizations and individuals doing an insurance business without supervision by the Insurance Depart- ment, merely because there is no positive law governing their par- ticular kind of business. This opens the field for irresponsible and wildcat concerns, and the welfare of the people of this State demands that all insurance organizations of every kind and character should be brought under the supervision of this department. Twelfth. There should be a complete codification of the insurance laws of this State for the purpose of providing a general supervision act governing all classes of the business alike in this respect; uniform provisions for fees, taxes and Ucenses; investments, deposits, etc.; a general insurance statute is being prepared, and will be submitted. 235 Thirteenth. At present the liquidation of insolvent or retiring insurance com- panies is accomplished in practically the same manner as any other corporation. This procedure is often against the best interests of the policyholders of such companies, and it is also unnecessarily expensive. The insurance department can, at small expense, and with absolute justice to all parties concerned, easily liquidate the affairs of insolvent companies. Such a law is in force in New York, and many other leading states. Fourteenth. A complete and comprehensive law governing the investment of funds and capital stock deposit of insurance companies should be enacted, enumerating specifically the kind of securities in which com- panies may invest their funds ; preventing officers or agents connected with an insurance company from having any personal interest, direct or indirect, in the making of investments of the funds of the company ; and making a violation of this provision a criminal offense. Fifteenth. It should be made a criminal offense fot- an officer or employee of any insurance company to fail to produce all books of the company for examination by the insurance superintendent, and a similar offense for making a false statement or false entries on its books. The person committing such act should be liable to prosecution in the county where the act was committed, or where the documents are by law required to be filed. Sixteenth. In order to permit the insurance department to make proper inves- tigations and examinations relative to the insurance business, it is necessary that a law be enacted- compelling every person to appear and testify at any hearing held by the insurance superintendent,- upon any insurance matter, and produce any and all records and evidence in his possession relating to the operations or condition of any ilisurance company or organization upon summons by the insurance superin- tendent. Seventeenth. All disbursements of insurance companies of this State where the total amount paid is $50, or more, should be made by voucher, such voucher to show the exact nature of the obligation or service for which payment is made, and to contain the signature of the person, his attorney or representative receiving the payment. This will greatly aid examiners in tracing all disbursements of a company, and ascer- taining the purpose and legitimacy of the payments. Such a law is now in force in many states. Eighteenth. The power of examination of the insurance department should be extended to include the records of any agency or branch office of an insurance company, or the records of any company connected with 236 an insurance company, such as a holding, operating or promoting company. Also, it is often necessary to verify a company's financial statement by an examination of the records of a bank. Nineteenth. There should be a full and complete law governing the reinsur- ance, -merger, or consolidation of all insurance organizations organized under the l4ws of, or doing business in this State, and a provision requiring approval by the insurance superintendent and the Attorney General of this State of any such reinsurance agreement. Twentieth. I believe that a local investment act would be of great benefit to the State of Illinois, making it compulsory for all insurance companies doing business in this State to invest a ireasonable percentage of their premium income from this State in Illinois securities. Such a law would secure for Illinois citizens the benefit of a wider market for their securities, and would also afford greater security for policy- holders by preventing to some extent the speculation now somewhat prevalent owing to the great centralization of insurance money in eastern money centers. Twenty-first. There should be standard provisions policy form laws covering each branch of insurance business. Insurance policies are practically unilateral contracts, and the rights jof policyholders should be pro- tected by such a law. Twenty-second. This department should have complete supervision over all insur- ance companies in process of organization from the time charter papers are filed. There 'should also be a limitation of the amount of money which may be expended, in the organization of a company, figured as a percentage of the original subscription. The citizens of this State have too long been the prey of the promoters of insurance stock selling schemes. Twenty-third. There should be an anticompact law applying to all insurance organizations doing business in this State, prohibiting companies, offi- cials of companies, agents or representatives in any branch of the insurance business from entering into any agreement or understanding whatever as to premium rates or business practices, which affect premium rates. Twenty-fourth. There should be a statutory limitation of the maximum percentage of capitalization which any insurance company, except life, may put at risk in a single hazard. Twenty-fifth. There should be a law covering all lines of insurance business, prohibiting rebating of premiums or discrimination against risks of 23? equal hazard. Such act should also prohibit an agent or officer of one company from "twisting" the business or agents of another company. Twenty-sixth. There is at present a well defined sentiment upon the part of legitimate insurance agents, the insuring public and the insurance com- panies, that there should be enacted a complete agent's qualification law, covering all branches of insurance. I also recommend that insurance brokers and public adjusters be placed under the supervision of the insurance department, and that a reasonable license fee be charged". Twenty-seventh. ' There should be a provision of law penalizing any insurance organization bringing a suit in the federal courts or removing a suit already brought in the State courts to the federal courts, relative to any controversy with any citizen or official of this State, by a revoca- tion of itslicense by the insurance superintendent. Twenty-eighth. A copy of all financial statements or reports of every kind and character, made by certified public accountants or private auditors, of the business of any insurance organization, other than any regular employee, should be filed with the insurance department within thirty days of the time the same is filed with such organization. Twenty-ninth. In the fire insurance statute recommended, bill for which is re- ferred to in recommendation 1, there is provision for general control of surplus line insurance, or the practice of writing insurance in unauthor- ized companies where licensed companies will not accept the business. I am preparing, however, for submission to the Legislature, bill covering specifically the regulation which I. believe to be necessary if this practice is to be legally recognized and continued. Respectfully submitted, » , RuFus M. Potts. Insurance Superintendent. PROPOSED FIRE INSURANCE LAW. A Bill For an Act concerning, and to regulate fire, lightning, sprinkler leak- age, windstorm, hail and marine insurance; and to create an Illinois Insurance Commission with authority to make insurance rates, and otherwise regulate and control fire, lightning, sprinkler leakage, windstorm, hail and marine insurance; and to provide for the expenses and salaries of such commission and its em- ployees; and to create an insurance fund to be administered by the Illinois Insurance Commission upon the occurrence of certain contingencies; and to give the Illinois Insurance Commission authority to make rules and to provide a system and means for the administration of such fund; and to fix penalties for the S3S violation of the provisions of this Act; and to repeal Acts or parts of. Acts in conflict with the provisions of this Act. Section 1. Be it enacted by the People of the State of Illinois, represented in the General Assembly: That it is hereby declared that fire, lightning, sprinkler leakage, windstorm, hail, and marine insur- ance are impressed with a public interest and subject to control and regulation by law, and that all rates or charges made, demanded or received by any person, firm, association or corporation engaged in any of said branches of insurance shall be just and reasonable. Every unjust or unreasonable charge or rite for said insurance is hereby prohibited and declared unlawful. § 3. In order to regulate and control said branches of insurance, there is hereby created a commission to be known as the Illinois Insur- ance Commission, hereinafter styled "commission" to consist of three members, as follows: The insurance superintendent, by virtue of his' office, shall be one of the members of the commission and shall be chairman thereof ; and two additional members to be appointed by the Governor, with the advice and consent of the Senate, at least one of whom shall be experienced in the business of fire insurance. The additional members shall be appointed within thirty days after this Act shall take effect and shall continue in office until the first day of March, 1911', and thereafter the term of each such member of the commission shall be four years : Provided, that if any vacancy occurs during the recess of the Senate, a temporary appointment may be made by the Governor until the next meeting of the Senate. Each member shall hold office until his successor shall have been appointed and qualified. Two members shall constitute a quorum which shall have authority to exercise all the powers of the commission. § 3. The commission shall have power, with the approval of the Governor, to employ such assistants, actuaries, engineers, experts, in- spectors and other employees as may be reasonably necessary to enable the commission to carry out the provisions of this Act, and to perform the duties and exercise the powers conferred by law upon the com- mission. Such, appointments, other than those of chief actuary, chief engineer, chief inspector and one private secretary to each commis- sioner, and experts, temporarily employed, and other positions which may be exempted by the Civil Service Commission, shall be included in the classified civil service of the State, and shall be made subject to the provisions of an Act, entitled, "An Act to regulate the Civil Service of the State of Illinois," approved May 11, 1905, in force July 14, 1905, and Acts amendatory thereto. § 4. Each commissioner as such, before entering upon the duties ^of his office, shall take and subscribe the constitutional oath of office. No person in the employ of any insurer subject to regulation by the commission, and no person holding stocks or bonds in any insurer or in any other manner pecuniarily interested therein, directly or indi- rectly, except as a policyholder, shall hold the office of commissioner, or be employed by the commission ; and, if any person shall voluntarily become so interested, his office or employment shall by that fact imme- diately become vacant: Provided, that if any person becomes so 339 interested by gift, devise or descent, he shall immediately inform the commission of such fact in writing, and thereafter, within a reason- able time, divest himself of such interest, and, if he fails so to do, his office or employment shall become and be declared vacant by the Governor or by the commission, whichever appointed such person, and a successor appointed as in the case of other vacancies. No commis- sioner or person appointed or employed by the commission shall solicit or accept any gratuity, emolument or employment from any insurer subject to the supervision of the commission, or from any officer, agent or employee thereof, either directly or indirectly ; nor solicit or recommend, directly or indirectly, to any insurer, or to any officer, agent or employee thereof, the appointment of any person to any place or employment. Every such insurer or officer, agent or employee thereof, is hereby forbidden to offer, directly or indirectly, to any commissioner or any*person appointed or employed by the com- missioner any gratuity, emolument, employment or other consideration. § 5. If any commissioner or any person employed by the commis- sion shall violate any provision of the foregoing section, his office or employment shall be declared vacant by the Governor or commission whichever appointed such person and such person shall thereby be removed from the office or employment held by him. Every person violating the provisions of the foregoing section shall also be guilty of a misdemeanor and punished as hereinafter provided. § 6. Before entering upon the duties of his office, each commis- sioner shall give bond or security to be approved by the Governor in the sum of ten thousand dollars, conditioned for the faithful perform- ance of his duty as such commissioner. Every person appointed or employed by, or for the commission may, in the discretion of the commission, before entering upon the duties of his office or appoint- ment, be required to give bond for the faithful discharge of his duties in such sum as the commission may designate, which bond shall be approved by the commission. § 7. The Insurance Superintendent shall receive no compensation as a member of the commission other than his salary as Insurance Superintendent. The two additional members of the commission shall each receive a salary of five thousand dollars per annum. The com- pensation of all employees of the commission shall be fixed by the commission subject to the approval of the Governor. The commis- sioners and all employees shall have reimbursed to them all traveling expenses and disbursements necessarily incurred or made by them in the discharge of their official duties, upon a detailed, verified statement of same. The commission may also incur necessary expenses for its offices, office furniture, maintenance and supplies. All items of expense incurred by the commission as such, or any member or employee thereof, shall be paid, upon the order of the chairman of the commis- , sion, approved by the Governor, out of the money appropriated for the commission. § 8. The office of the commission shall be located in the State Capitol building. The office of the commission shall be open for busi- ness between the hours of 8 o'clock in the morning and 5 o'clock in 240 the evening throughout the year (Sundays and legal holidays ex- cepted), and one or more of the commissioners, or some employee to. be designated by the chairman of the commission, shall be on duty during the office hours and in immediate charge thereof. § 9. The commission shall adopt reasonable and proper rules and regulations relative to the exercising of its powers, and to govern its proceedings and to regulate the mode and manner of all investigations and hearings, with power to alter and amend same. § 10. The commission shall hold stated meetings on the first Mon- day of each month at its principal office for hearing petitions and complaints, and for any other purpose within the purview of this Act. Special meetings may be held by the commission or any two members thereof at such time or times, place or places, within the State as the commission may designate. § 11. The commission shall, for the authentication of its records, process and proceedings, adopt, keep and use a common seal, of which seal judicial notice shall be taken in all courts in the State; and any process, writ, notice or other paper which the commission may be authorized by law to issue, shall be deemed sufficient if signed by the chairnian, or, in his absence, by any other member of the commission, and authenticated by such seal ; and all other acts, orders, proceedings, rules, entries, minutes, schedules and records of the commission, and all reports and documents filed by the commission may be proved in any court in this State by a copy thereof certified to by the chairman of the commission, or, in his absence, by any other commissioner. § 12. The commission shall have the sole and exclusive power and authority, and it is its duty to prescribe, fix, determine, alter and promulgate the rates of premiums to be charged and collected by all insurers subject to the provisions of this Act. As soon as practicable after the appointment and qualification of the members thereof, the commission shall proceed to make a classification of all the insurable real and chattel property in this State, including property in transit and marine risks for insurance purposes, placing in separate classes similar kinds of property, under similar conditions of location, and other _ hazards. In making such classification, the commission may avail itself in such manner as it deems proper of all classifications and information heretofore collected by insurers or otherwise on this sub- ject, and also of the services of insurance experts. § 13. If, in the judgment of the commission, there exists insur- able property, either real or chattel, which, by reason of location, exposure or any other peculiarity can not be conveniently included in any class, then it shall so find and make a record thereof and sepa- rate rates may be made by the commission as hereinafter provided for each separate property so excepted from the general classification of property. § 14. The commission shall fix just and reasonable premium rates for the branches of insurance within the purview of this Act on each class of property in the State, taking into due account all the different hazards from location or other tactors which aflfect the same. These rates shall be revised from time to time, according to such changes 341 as may occur in the loss ratio of each city, town, village and of each county in the State, outside of said municipalities, in such manner as will grant each locality such reduction in rate as may be deemed just and reasonable by the commission on account of any reduction of the loss ratio, and shall make such an increase in rates as it may deem just and reasonable on account of any increase in the loss ratio in each city, town or village, or in each county, outside of said munici- palities : Provided, that until the work of fixing and determining and promulgating the rates of insurance to be charged and collected by the insurers throughout the State, and the making and adoption of its schedules of rates for each class and locality shall have been fully completed, as to such class and locality, the commission shall havp power and authority to adopt and continue in force the rates of pre- miums which have heretofore been charged and collected, or any por- tion thereof, modified or cianged in any way it may direct, for such time as it may prescribe, not exceeding, for any class of property, the time when the work of miaking and promulgating such schedules for such class of property for any locality of the State shall have been completed. And, provided, further, that the provisions of this Act concerning the regulation and making of premium rates shall not be construed to apply to the amounts of the initial and subsequent deposits made by members of bona fide mutual insurance companies not organized or operated for profit; but the commission shall have power to make an examination into the business and affairs of such mutual companies in such manner as shall disclose the methods, details and results of the assessments for, and the payment of losses, as well as their general operation. § 15. The premium rates fixed by the commission, in pursuance of the provisions of this Act, shall be, at all times, reasonable and the schedules thereof made and promulgated- by the commission, as herein provided, shall be in such form as will, in the judgment of the com- mission, most clearly and definitely and in detail disclose the premium rates so fixed and determined by the commission to be charged and collected for policies of such insurance. The commission, in making and publishing schedules of the rates fixed and determined by it, shall show charges, credits, terms, privileges and conditions which in any- wise affect such rates, and copies of any schedule shall be furnished by the commission upon request to any person, resident in the locality to wfiich the same applies. No rate or rates fixed or determined by the commission shall take effect until it shall have entered an order or orders fixing and determining the same, which order shall state the time when such rate shall go into effect; and notice thereof shall be given to every insurer affected by this Act by depositing in the United States mails a copy of the same properly stamped and addressed to the principal office in the United States of such insurer. § 16. The rates of insurance fixed by the commission shall be taken and cohsidered as maximum rates only, and any insurer shall be free to grant such lower rates of insurance as it or they may see —16 P s 2i2 fit : Provided, that such lower rate shall be the same to all applicants for all property belonging to each of the respective classes made by the commission. If any insurer grants a lower rate on any class of property than that fixed by the commission, it shall, within five days, file a notice of the same with the commission, and such rate shall not be raised until at least one year has elapsed without the approval of the commission. § 17. The commission shall have full power and authority to alter, amend, modify or change any rate fixed and determined by it, or to prescribe that any such rate or rates shall be in effect for a limited time, and also to prescribe reasonable rules whereby, in case no rate of premium shall have been fixed and determined by the commission for any risks or classes of risks, policies may be written thereon at rates to be determined by the insurers : Provided, however, that such insurers shall immediately report to the commission such risks so written, and the rate, charged therefor, and such rates shall be subject to review by the commission. § 18. It shall be the duty of the commission and of any inspector or other agent or employee thereof, who shall inspect any risk for the purpose of obtaining information concerning the same to enable the commission to fix and determine the reasonable rate to be charged thereon, to furnish to the owner or occupant of such risk, at the time of the completion of such inspection, a duplicate copy of his report of such inspection, showing all particulars which may affect such rate. Any owner or occupant, who considers that said inspection report is not true or just, shall have the right to present a protest to the com- mission, which shall be heard within 10 days by the commission or some member or employee thereof designated by the chairman, who shall hear the same in a summary manner and make such order con- firming such inspection report, either wholly or in part, or directing a reinspection of said property* by another inspector as may be deemed just and reasonable under the circumstances. Any such owner or occupant shall have a similar right of appeal from such order to that granted in section 34 herein. § 19. The commission, upon the request of any property owner, . shall furnish to him a written or printed analysis of the premium rate fixed by the commission upon such property, showing all the items of charge or credit which go to make up the total premium rate. The commission shall make a charge therefor of 25 c'ents. In case any insured makes such improvements in his property as removes or substantially reduces any of the hazards affecting the rate on such property, then the rate on such property shall be re- duced accordingly and the excess of premium for the remainder of the period of insurance refunded to the insured. In case the in- surer neglects or refuses after ten days' notice to reduce such rate and refund premiums as herein provided, the insured shall have the right to petition the commission for an order directing such refund with the same procedure provided in section 23, or the insured may bring suit for the same in any court having jurisdiction. 243 § 30. All schedules of rates promulgated by the commissioij shall be open to the public at all times, and every local agent of any insurer transacting business in this State shall have, and exhibit to the public, copies of such schedules, covering all risks upon which he is authorized to write insurance. §21. Any insurer affected by this Act shall have the right at any time to petition the commission for an order changing or modifying any rates fixed or determined by the commission: Pro- vided, that notice shall be given of the hearing on such petition at least 20 days in advance by publication, at least twice, in such man- ner, and in such localities, affected by said petition as the commis- . sion may direct by its order endorsed upon the copy of said peti- tion filed with it. The commission shall consider such petition and enter such order theueon as it may deem just and equitable. § 22. Any citizen or number of citizens in this State, or any policy holder or holders, or any board of trade, chamber of com- merce, or any civic organization, or the civil authorities of any town, city, village or county shall also have the right to file a peti- tion with the commission, setting forth any cause of complaint that they may have as to any order made by the commission, or any rate fixed and determined by the commission or any rate de- manded by insurers in case where the commission has not fixed any rate: Provided, that not less than 10 days' notice of a hearing thereon shall be given to such insurers as may be directed by the commission by its order endorsed on said petition, by depositing copies of a notice of such hearing in the United States mail ad- dressed to the principal office in the United States of such insurers. Petitioners and respondents shall have the right to offer evidence in relation to the allegations of such petitions and answers thereto in such manner as may be prescribed by the rules of the commis- sion. It shall not be necessary for any of the parties to be present before the commission at the time set for hearing, but the commis- sion shall, nevertheless, consider all evidence, and if it is found that the complaint made in such petition is well founded, or that changes or modifications of rates or orders of the commission should be made, then such change or other action necessary to remedy the matter complained of shall be ordered and the same entered in its record by the commission. § 33. Any petitioner or respondent shall have the right to ap- peal from any order of the commission or finding entered by the commission to the Circuit Court of Sangamon County. Such ap- pellant shall set forth, in a petition praying for such appeal, the principal ground or grounds of objection to such order or finding, and the issue shall be formed and the controversy tried according to the rules of chancery practice of this State. Said Circuit Court may set aside, vacate or annul any such order or finding of the com- mission, or any part thereof, which may be found by the said" court to be unlawful or unjust, without disturbing the remainder thereof. § 24. No injunction or interlocutory order suspending or re- straining the enforcement of any schedule, rate, order or finding of 244 the commission shall be granted, but said court shall proceed to hear said cause in a summary manner at the earliest time practica- ble, not less than 20 days after the filing of such appeal, and shall enter such final judgment as it shall deem just. Either party to such appeal, if dissatisfied With the judgment of said court, may appeal therefrom direct to the Supreme Court. § 25. The commission shall inquire into and keep informed as to the methods by which the business of all of the branches of in- surance included herein are conducted, and also keep informed as to the general condition, franchises, capitalization, agencies, rates and other charges with respect to the security afforded by insurers, and also with respect to compliance with established rates and the provisions of this Act, and any other law, and with the orders of ' the commission. § 26. The information arid statistics mentioned in section 13, and also such other statistics of all branches of insurance within the purview of this Act, both past and present, which may be de- sired and directed by the commission, shall be preserved and accu- mulated, from year to year, continuously hereafter, and tabulated in such manner as will show any change or variation, from year to year, in the loss ratio as to each class of property in each locality of the State ; and as will also show any variation which may occur in the average loss ratio of each city, town or village, and also in each county of the State, outside of the municipalities above men- tioned. § 27. Such information shall be kept permanently/ on file in the office of the commission, and shall be accessible, under reason- able rules and regulations, to any citizen of the State of Illinois, and such information, or a summary thereof, shall be included in the annual report of the commission. § 28. Hearings, examinations and investigations may be con- ducted by one or more commissioners, designated by the chairman, and a report thereof, in writing, made to the commission. Any commissioner conducting such hearing, examination or investiga- tion as aforesaid, shall have power in any county in the State of Illinois to summon and compel the attendance of witnesses before him, or to testify in relation to any matter relative to such hearing, examination or investigation, and may require the production of any books, papers or documents deemed pertinent thereto by him, and shall be authorized and empowered to administer oaths and affirmations to any person or persons appearing as witnesses before him; and false swearing, in any matter or proceeding aforesaid shall be deemed perjury and shall be punished as such. Any wit- ness who refuses to be sworn, or who refuses to testify, or who disobeys any lawful order of any person conducting such hearing, examination or investigation, or who fails or refuses to produce any book, paper or document touching any matter under examina- tion, or who is guilty of any contemptuous conduct after being summoned to appear before him to give testimony in relation to any matter or subject under investigation as aforesaid, shall be MS deemed guilty of a misdemeanor and it shall be the duty of the person conducting such hearing, examination or investigation to make complaint against such person or persons, before any justice of the peace, police magistrate or any court of record in the county in which said hearing, examination or investigation is being had, and, upon the filing of such complaint, the trial of such cause shall proceed in the same manner as the trial of other misdemeanors, and upon conviction any such person guilty of a violation of the provisions of this Act shall be fined in a sum not exceeding $100, and imprisoned until such fine is paid: Provided, however, that any person so convicted' shall have the right of appeal. § 29. The commission may conduct hearings and take testi- mony relative to any pending legislation concerning any matter within its jurisdiction, if requested so to do by the General Assem- bly, or either branch thereof, or by a standing committee of either branch thereof, and shall report its conclusions to the General Assembly. § 30. Every insurer engaged in any of the branches of insur- ance, within the jurisdiction of the commission, shall furnish to it all information required by it to carry into effect the provisions of this Act, and shall make specific answter under oath to all questions submitted by the commission. Any insurer receiving from the commission any blanks, with directions to fill the same, shall cause the same to be properly filled so as to answer fully and correctly each question therein propounded, and, in case it is unable to answer any question, it shall give a good and sufficient reason for such failure ; and said reason shall be verified under oath by either the president, secretary, superintendent, general manager, man- ager for the State of Illinois, agent or attorney in fact, as the com- mission may direct, and returned to the commission at its office within the period fixed by the commission. § 31. Whenever required by the commission, every insurer engaged in any of the branches of insurance within the jurisdiction of the commission, shall permit inspection of any or all maps, fire maps, documents, books, accounts, papers, reports, records and files in its possession, or in any way relating to its property, or affecting its business, by such persons and in such form as the commission may direct, and also furnish verified copies of the same except fire maps if required by the commission. § 33. Every insurer engaged in insurance, within the jurisdic- tion of the commission, shall obey and comply with each and every requirement of every order, decision, direction, rule or regulation made or prescribed by the commission in the matters herein speci- fied or any other matter in any way relating to or affecting its business, and shall do everything necessary or proper in order to comply with and observe every such order, decision, direction, rule or regulation by all of its officers, agents and employees, and fail- ure so to do shall render the offender or offenders liable to the penalties hereinunder provided. 246 § 33. All proceedings of the commission and its documents and records shall be public records. The commission shall on or before May 1 of each year prepare and file with the Governor a report giving a summary of the acts and proceedings of the commission to and including December 31 of the previous year. § 34. In case any person by arson, carelessness or negligence starts or permits to be started a fire which causes damage to the property of others, he shall be liable for all damages thereby caused to the person or property of others. In case there is insurance on the property of other persons damaged, and such insurance is paid, then the insurer shall be subrogated to the rights of the owner of the property damaged. § 35. Every insurer within the purview of this Act is prohib- ited from entering into or becoming party to any agreement, under- standing, combination, pool, trust or any device or scheme whatso- ever, either directly or indirectly, for the purpose of controlling, fixing or maintaining insurance rates and is forbidden to maintain jointly, or send policies or reports thereof to any joint stamping bureau or similar institution or device. § 36. It shall not be lawful for any person to act as agent for any insurer, within the purview of this Act, by soliciting business or countersigning policies without procuring annually, on or before the first day of February, a certificate of authority from the insur- ance superintendent for which a fee of $3.00 shall be paid by all nonresident insurance companies. Such certificate of authority shall not be issued to any person not a bona fide resident of the State of Illinois. The commission is authorized to make such rea- sonable rules and regulations as it deems proper with reference to the qualifications of such insurance agents, and no certificate of authority shall be issued by the insurance superintendent to any applicant who does" not possess the qualifications prescribed by the commission. The insurance superintendent may, for good cause, revoke such certificate of authority. No policy of insurance shall be issued or delivered in this. State by any nonresident insurer li- censed to transact business in this State, except through a, duly authorized agent. § 37. No insurer or any officer or agent thereof shall rebate or return, either directly or indirectly, to any insured, the premium received, or any part thereof, except as provided for cancellation, and shall not, directly or indirectly, by any means or device what- soever charge different rates of premium on the same class of prop- erty having the same hazard, in the same city, town, village or county, excepting that rates may be raised or lowered to all in- sured as herein provided. § 38. All terms and conditions of policies of insurance within the purview of this Act, shall be just and equitable. All insurers engaged in the branches of insurance in this State within the pur- view of this Act shall, before they use the same, file w'ith the com- mission, copies of all policies. The commission shall examine all such policies, and if in its opinion any of the terms or conditions 247 of any policy are unjust and inequitable, it shall so find and notify the insurer proposing to use the same and thereafter it shall be unlawful for any insurer to use any policy containing such disap- proved terms and conditions. Any such insurer may appeal from any order of the commission under this section to the Circuit Court of Sangamon County as provided in section 33 of this Act. The commission shall on or before the first day of December, 1918, for the information of the Legislature, prepare as many standard forms of policies, containing just and equitable terms and conditions to apply to the different classes of property and varying circumstances as it shall deem necessary or be desirable, and shall submit the same to the first session of the Legislature convening thereafter. § 39. For the purpose of preventing overinsurance and fraudu- lent removal of merchan4ise insured from stocks which are being diminished or increased from time to time by sale or purchase, the commission is hereby authorized and required to make such rules and regulations and amend the same from time to time as its ex- perience may suggest with regard to keeping records of purchases, sale, removal of property and any other provision which will in its judgment aid in preventing the carrying of insurance at any time in excess of the market value of the merchandise or other chattel property, and also any other rules and regulations which will, in its judgment, aid in preventing fraud, arson or other crimes in, con- nection with insurance. Misrepresentations, knowingly and wil- fully made concerning the value, condition, location or other ma- terial particulars concerning the property applied to be insured, or concerning the applicant, shall be considered as false pretense un- der the criminal statutes of this State, and any person guilty of making such misrepresentation shall be punished as is now pro- vided by law for making false pretenses. § 40. No insurer shall grant insurance on any single risk for a greater amount than 10 per cent of its paid up capital and net sur- plus. Reinsurance by any insurer of a whole or part of any risk is forbidden, except as allowed by order of the commission, and then only to other insurers admitted to do business in this State. All reinsurers shall make a report to the commission, at such time and manner, as by it directed of all reinsurance carried by them. § 41. No insurance by unadmitted companies, commonly known as "surplus line insurance," shall be issued, except upon the written permission of the commission or some employee thereof authorized by the chairman to grant such permission, and all un- admitted insurers so writing such insurance shall be within the supervision and control of *the commission with the same power over them as is provided for admitted companies. § 42. No insurer shall issue a policy in any other than its true name, or containing or bearing thereon any endorsement showing that it is issued by or through any underwriters annex, department or agency. The operation of so-called underwriters annexes, agencies, or departments, which issue policies of insurance, guaran- teed or signed by regularly licensed insurance companies, is pro- 248 hibited. The license of any insurer violating the provisions of this section shall be revoked by the insurance superintendent. § 43. If any insurer domiciled in or a resident of any other state of the United States, or of any foreign nation, and admitted to do business in this State, begins a suit against a State official, individual or corporation concerning any transaction in or relating to property in this State in a United States Court, or transfers a suit begun against such insurer in any court of this State to a United States Court, then it shall be the duty of the insurance su- perintendent to at once revoke the license of such insurer, and such insurer shall not be permitted to do business in this State so long as such insurer maintains any such suit in a United States Court. § 44. The commission shall, with such assistance and advice as it deems desirable and as soon as practicable, prepare, or cause to be prepared, a comprehensive report giving an enumeration and explanation in detail of all the various kinds of fire hazard, and the origin and cause of destructive fires, together with the best meth- ods of removing or minimizing the same, and lessening danger to life from fire, and setting forth the use and advantage of sprink- lered systems, fire prevention and fire resisting constructions and other means of providing and lessening the hazard to property, and also explaining such methods of repair and improving of existing buildings as will lessen the hazard thereon. Said report shall be made with a special view of the same or a part thereof being used for purposes of instruction in the public schools, colleges and uni- versities of this State, and shall be revised from time to time so as to contain all new information on these subjects. § 45. These reports shall be distributed free of charge to all citizens of the State who shall request the same, and furnished to all schools. Instruction as to the origin and causes of fires and fire hazards, fire prevention, avoidance of danger to life by fire and related subjects shall be given in the public schools, colleges and universities supported by the State. § 46. It shall be the duty of the commission to prepare model building codes and other municipal ordinances for the various classes of cities and villages in this State for the purpose of pre- venting and lessening danger to life and property by fire, and it shall recommend the same for adoption; and shall also, upon re- quest, advise the authorities of any municipality concerning the revision of existing ordinances, rules and regulations for purposes of fire prevention and protection. § 47. No person shall be excused from giving testimony or pro- ducing evidence when called upon to do so at any hearing before the commission, or any person conducting a hearing under this Act, on the ground that it may incriminate him under the laws of this State; but no person shall be prosecuted criminally or subject to any criminal pena,lty on account of any transaction, matter or thing concerning which he may testify or produce evidence under this Act, except for perjury in so testifying. 249 § 48. The violation of any provision of this Act, including the doing of any act or thing herein prohibited, for which penalties have not been hereinbefore specifically provided, shall be punished by a fine of not less than one hundred or more than one thousand dollars for the first offense, and not less than five hundred or more than two thousand dollars for succeeding offenses. § 49. If insurers, coming within the purview of this Act, or any of them, shall by concerted action, agreement, or understanding, at any time, either at once or gradually, cease to write insurance in this State; withdraw from this State; fail to file their anntaal statements as required by law, or cancel policies of insurance in this State in such numbers as shall in the judgment of the commis- sion materially impair the insurance protection, the commission shall make an investigation thereof, and if, upon an investigation, it shall find that any one* or more of these things have been done by such insurers, in the manner as herein stated, the commission shall enter such finding of record, naming such insurers found to have participated in such concerted action, agreement, or under- standing, and, upon the entering of record of such finding, it shall thereupon become and be the duty of the insurance superintendent to revoke and annul the license of any of such insurers so found to have participated in such concerted action, agreement, or under- standing, and no license shall be revived, issued, or reissued for a period of ten years thereafter: Provided, that nothing herein con- tained shall apply to insurers entering into a lawful agreement of reinsurance or consolidation. § 50. There is hereby created and established a State. Insurance Fund, hereinafter called "insurance fund," which shall be begun, accumulated and administered by the commission in the manner and only upon the conditions hereinafter set forth, without liability upon the part of the State beyond the amount and the surplus accumulations of such insurance fund. Such insurance fund shall be used by the commission for the purpose of paying the losses and expenses incurred by reason of the making, granting and furnish- ing insurance by the commission, of the kinds within the purviews of this Act, upon insurance property in this State. § 61. If such number of insurers within the purview of this Act, shall by concerted action, agreement or understanding, at any time, either at once or gradually, cease to write insurance in, this State, or withdraw from this State, as shall, in the judgment of the commission, materially impair insurance protection of this State, or if such insurer shall cancel policies of insurance in this State in such numbers as shall, in the judgment of the commission, materially impair the insurance protection of this State, and when- ever it shall be determined by the commission that the facilities for obtaining insurance afforded by insurers authorized to' conduct the branches of insurance within the purview of this Act, in this State are, by reason of the above causes, inadequate or insufficient to meet the needs of citizens and property owners of this State seek- ing such insurance, then the commission shall enter in its records 250 a finding of the existence of such condition, and shall certify such finding to the Governor, and it shall thereupon become and be the duty of the commission, with the approval of the Governor, to begin and make operative said insurance fund, and to give public notice thereof. Said insurance fund shall be administered by the commission, wtihout liability on the part of the State beyond the amount of such insurance fund and surplus accumulations thereof and any money appropriated for that purpose by law, for the pur- pose of granting insurance of the kinds within the purview of this Act, on insurable property located within the State. § 53. The State Treasurer shall be ex officio treasurer and cus- todian of the insurance fund, but all other matters in relation thereto shall be under the supervision and control of the commis- sion. The treasurer shall give such bond therefor as may be re- quired and approved by the Governor, which bond shall be in addi- tion to his official bond. Subject to the general direction of the commission as to the amount to be invested, and the kind, value and maturity of securities, the treasurer shall cause the moneys in the insurance fund to be invested and reinvested in notes or bonds secured by mortgages on unincumbered real estate located within this State of the cash market value of at least twice the amount of the loan made thereon, or in bonds of this State or of any of the incorporated cities, counties, townships, school districts or other municipal corporations therein, subject to the approval of the commission. All interest, earnings and accumulations received from such investments shall become and be a part of such insur- ance fund. § 53. When the commission shall proceed to begin and make operative the insurance fund hereby created, it shall prepare, and furnish for use, forms of applications for policies, and policy forms, schedules of premium rates and such other forms and data as may be necessary for carrying out the provisions of this Act. The commission shall have power to inspect and classify properties, fix rates and schedules of rates, make and issue policies of insurance and collect premiums, and make any and all necessary rules and regulations concerning such insurance; to provide offices at con- venient locations throughout the State where persons seeking such insurance may make application for the same, and where policies of insurance may be issued; to hire any and all such employees as may be necessary for the conduct of such insurance in its various branches, and to do and perform any and all other acts and things which may be necessary and proper to be done for the carrying out of the purposes of this insurance fund, and provisions of this Act, in relation thereto. § 54. Premium rates shall be such as will accumulate and maintain, at all times, a surplus reserve which, in the judgment of the commission, shall be adequate for the purpose of meeting any conflagration emergency. The securities belonging to the insur- ance fund may be pledged or sold by the State Treasurer at the direction of the commission for the purpose of providing current 351 funds to pay losses. In case at any time current funds are ex- hausted, the treasurer, upon the written direction of the commis- sion, approved by the Governor, shall have the power to, and shall issue, and sell, for the purpose of providing funds to pay losses, interest bearing notes which shall be redeemed only out of future receipts of the insurance fund. § 55. On and after the date on which such insurance fund shall begin and become operative, no administrative board, governing body, officer or agent of this State, or of any county, township, school district, city or other municipal corporation within the State, and no person or persons having charge of any public build- ings or insurable property of this State, or of any county, town- ship, school district, city or other municipal corporation within the State, shall in any manner contract for or incur any indebtedness against the State, or any county, township, school district, city or other municipal corporation within the State, on account of any insurance of the kinds within the purview of this Act, or shall dis- burse any public moneys or funds on account of such insurance upon any of the public buildings, furniture, fixtures or property of any kind whatever belonging to the State, or any countv, town- ship, school district, city or other municipal corporation within the State, except for insurance in said insurance fund. Every admin- istrative board, -governing body, officer, or agent of the State, or any county, township, school district, city, or other municipal cor- poration in the State, which shall desire to insure property in their charge and custody shall efFcQt such insurance of the kinds within the jurisdiction of the commission only by means of the insurance fund, as herein provided. § 56. Nothing in this Act shall affect or apply to. district, county and township, mutual fire insurance companies nor district mutual windstorm, cyclone or tornado insurance companies, nor county mutual windstorm insurance companies organized and doing business under the laws of this State. § 57. If any part of this Act be held for any reason unconsti- tutional, it shall not affect any other portion or part of this Act. § 58. All Acts and parts of Acts in conflict with the provisions of this Act are hereby repealed. PROPOSED WHOLE FAMILY PROTECTION LAW. A Bill to Provide Whole Family Protection for Members of Fra- ternal Benefit Societies. Section 1. Any fraternal benefit society authorized to do business in this State and operating on the lodge plan, may provide in its con- stitution and by-laws, in addition to other benefits provided for therein, for the payment of death or annuity benefits upon the lives of children between the ages of 2 and 18 years at next birthday, for whose support and maintenance a member of such society is responsible. Any such society may at its option organize and operate branches for such chil- 252 dren and membership in local lodges and initiation therein shall not be required of such children, nor shall they have any voice in the management of the society. The total benefits payable as above pro- vided shall in no case exceed the following amounts at ages at next birthday at time of death, respectively, as follows : Two, $34 ; three, $40 ; four, $48 ; five, $58 ; six, $140 ; seven, .$168 ; eight, $200 ; nine, $240 ; ten, $300 ; eleven, $380 ; twelve, $460 ; thirteen to fifteen, $520 ; and sixteen to eighteen years, where not otherwise authorized by law, $600. § 2. No benefit certificate as to any child shall take effect until after medical examination or inspection, in accordance with the laws of the society, nor shall any such benefit certificate be issued unless the society shall simultaneously put in force at least 500 such certifi- cates, on each of which at least one assessment has been paid, nor where the number of lives represented by such certificate falls below 500. The death benefit contributions to be made upon such certificate shall be based upon the "Standard Industrial Mortality Table" or the "English Life Table No. 6" and a rate of interest not greater than 4 per cent per annum, or upon a higher standard: Provided, that con- tributions may be waived or returns may be made from any surplus held in excess of reserve and other liabilities, as provided in the by- laws: And, provided, further, that extra contributions shall be made if the reserves hereafter provided for become impaired. §3. Any society entering into such insurance agreement shall maintain on all such contracts the reserve required by the standard of mortality and interest adopted by the society for computing con- tributions as provided in section 2, and the funds represented in the benefit contributions and all accretions thereon shall be kept as separate and distinct funds, independent of the other funds of the society, and shall not be liable for nor used for the payment of the debts and obligations of the society other than the benefits herein authorized: Provided, that a society may provide that when a child reaches the minimum age for initiation into membership in such society, any benefit certificate issued hereunder may be surrendered for cancella- tion and exchanged for any other form of certificate issued by the society: Provided, that such surrender will not reduce the number of lives insured in the branch below 500, and upon the issuance of such new certificate, any reserve upon the original certificate herein provided for shall be transferred to the credit of the new certificate. Neither the person who originally made application for benefits on account of such child, nor the beneficiary named in such original cer- tificate, nor the person who paid the contribution, shall have any vested right in such new certificate, the free nomination of a beneficiary under the new certificate being left to the child so admitted to benefit membership. § 4. An entirely separate financial statement of the business trans- actions and of assets and liabilities arising therefrom shall be made in its annual report to the insurance commissioners by any society availing itself of the provisions hereof. The separation of assets, funds and liabilities required hereby shall not be terminated, rescinded 263 or modified, nor shall the funds be diverted for any use other than as specified in section 3, as long as any certificates issued hereunder remain in force, and this requirement shall be recognized and enforced in any liquidation, reinsurance, merger or other change in the condi- tion of the status of the society. § 5. Any society shall have the right to provide in its laws and the certificate issued hereunder for specified payments on account of the expense or general fund, which payments shall or shall not be mingled with the general fund of the society as its constitution and by-laws may provide. § 6. In the event of the termination of membership in the society by the person responsible for the support of any diild, on whose account a certificate may have been issued, as provided herein, the certificate may be continued for the benefit of the estate of the child : Provided, the contributions are continued, or for the benefit of any other person responsible for the support and maintenance of such child, who shall assume the payment of the required contributions. SPECIAL REPORT CONTAINING Compilation of Classified Reports OF ALL Fire Insurance Business In Illinois During the Year 1915 257 LETTER OF TRANSMITTAL. Office of the Insurance Supeeintendent, Speingfield, III., December SO, 1916. To His Excellency, Edward F. Dunne, Governor, State of Illinois, Springfield. Sie: I submit herewith the following report, supplemental to my annual fiie report for the year ending December 31, 1915. This report is compiled from the sworn classification reports made by the stock fire insurance companies, mutuals, interinsurers and Lloyds. Owing to the delay of the fire insurance companies in furnishing the Insurance Depart- ment with the individual reports containing the data compiled in this report, it was not completed in time to be included in my regular annual fire report. Yours very respectfully, EuFUs M. Potts, Insurance Superintendent. —17 P S 259 INTRODUCTION. Before presenting the tables compiled from the data in the reports of the Are insurance companies, it will be desirable to give a few para- graphs explaining the purposes for which this information was collected and the plan upon which the tables given below have been compiled. PEEMIUM EATES SHOULD BE PEOPOETIOKATE TO PIEE LOSSES. In the very beginning of the fire insurance business, it was recog- nized that it was not just to charge the same premium rates for fire in- surance on different kinds of property, because some kinds of property were much more subject to destruction by fire than others ; wooden build- ings being more hazardous than brick; shingle roofs more dangerous than slate, metal or other noncombustible roofs; wood-working establish- ments much more liable to fire than marble works, and so on throughout all of the several hundred classes in which modem buildings and property can be classified. To be just, the premium rate must be fixed according to the average losses which occur in each class of property. A- trustworthy average, however, can only be obtained when all the losses, or as it is commonly termed, the "experience," in relation to large numbers of risks are taken into account. Such wide experience may be secured in two ways; first, where there is a small number of risks, by taking the average of the business extending over a number of years ; second, where there is a large number of risks, by taking the average for a shorter period — a period of one year being sufficient to give a close approximation where there is a very large number of risks in the class. At first the differences in fire insurance premium rates were entirely arbitrary — simply guesses by the manager of the company at a premiiim rate he believed would be profitable. It was, however, later realized that the only scientific and just way of fixing the premium rates for various kinds of property is by collecting and compiling the fire losses occur- ring in the different classes of risks and continuing this until it is determined what proportion, approximately, of each class of risks is destroyed by fire. When this proportion or "burning ratio" is obtained, it is an easy matter to fix an approximately just and equitable rate for each class of property by adding to the amount required to pay the annual fire loss,' whatever is reasonably necessary for expense and profit. Fire insurance companies should be allowed to charge rates sufficient to pay the average losses on each class of property they insure, and also for rea- sonable expense and profiC The latter items are included when losses are hereafter mentioned unless otherwise stated. What should be con- sidered a reasonable expense and profit will be discussed later. ^ 360 As a matter of fact, it has been on some such plan as this that all of the successful fire insurance companies individually fixed their rates until the time came when these were fixed by a combine or combines through open agreements, or secret ones, when necessary to evade the laws of the respective states. But even after the rates were fixed by agreement (which always has been and is now essentially monopolistic and illegal), the collection of fire loss statistics was kept up by the sep- arate companies for the purpose of ascertaining the results of their busi- ness, and particularly, for the purpose of finding out the classes which were most profitable. _ Such business they made a special effort to obtain, and likewise avoided as fat as possible those classes which their statistics showed were unprofitable. In some other kinds of insurance, particularly life insurance, very reliable results, approximating closely to absolute mathematical accuracy, have been obtained.^ The statistics, however, which are useful in life in- surance include not only those of the average term of life of insured per- sons, but valuable information is derived from the average term of life of the whole population obtained from the vital statistics which are now kept in nearly all civilized countries. Life insurance statistics show that under similar conditions of residence in similar geographical divisions, occupations, age, sex, etc., that there is a remarkably close approximation to regularity in the number of persons in a thousand or hundred thousand who attain all the different ages within the range of human longevity, which enables accurate estimates to be made of the number of such groups which will die each year thereafter until all are dead, and used as a correct ba'sis for fixing life insurance rates. It has also been found that, as civilization advances and general living and sanitary conditions are improved, there has been a gradual but constant decrease in the death rate, or, what amounts to the same thing, an increase in the average length of life. These facts furnish a firm foundation for the gigantic life insurance business now carried on in all civilized countries in the worlA Un other branches of insurance, the same close approximation to mathematical accuracy in estimating future losses has not yet been attained for several reasons, the two principal ones being : (1) Wider variations in the conditions affecting the occurrence of the contingency insured against, both as regard different periods of time and different localities; (3) As large a collection of reliable Statistics is not yet available because records of the occurrence of the contingencies insured against have no* been kept with anything like the same completeness that records of births and deaths have been kept. This is particularly true of fire insurance. Although this business has been carried on for over 350 years, it was long quite limited in appli- cation, and has been in extensive use less than a century. Moreover, there have been no complete collections in any country of detailed statis- ics of fire losses according to classes of property^ The corporations en- gaged in the fire insurance business have closely guarded as business secrets the number of fires occurring in the different classes of risks they insured. 361 The result has been that in fire insurance the premium rates have been fixed at such sums as, in the judgment of the managers of the com- panies, would be sufiBcient to pay losses and expenses, and provide "satis- factory" profits, these often amounting to 50 per cent to 100 per cent annually. The average in 1913 was 45.1 per cent for all American joint stock companies.* Rates were modified from time to time to meet com- petition (when this existed) or according to the favorable or unfavorable results of the business of the company. The raise in rates following un- favorable results was always prompt, but a drop in rates following favor- able results was very slow and frequently never occurred. For example : the companies raised rates on most classes over nearly all of the United States following the Baltimore confiagration but have never restored previous rates although the raise had already paid the Baltimore confla- gration losses dozens of times. "Experience" had, however, some general influence on fire insurance rates until about the year 1866. At that date the National Board of Fire Underwriters was organized. The chief original function of this organ- ization was to fix and maintain premium rates, and it performed this function effectively for a number of years, but eventually internal diifi- culties arose which caused this particular organization to give up its power of fixing fire insurance rates. Thig function was, however, efEec- tively and promptly assumed by other combiijes including the same com- panies but covering areas much smaller, territorially, than the whole United States. This is the condition with relation to fire insurance which exists ^n Illinois at the present time where insurance premiums rates are fixed and maintaiaed as follows: In the State outside of Cook County, rates are controlled by two combines, one called the "Union" or "Western Union," and the other the "Bureau" or the "Western Bureau." There is a working agreement be- tween these two by means of which uniform rates are fixed and charged by all of the stock fire insurance companies that are members (which includes practically all doing business in the State) . The rates on specific properties are calculated by an alleged independent concern called the "Illinois Inspection Bureau," but in reality this is the property of and controlled by the two "combines" which take effective measures to compel all their members to maintain the rates fixed by the "Illinois Inspection Bureau." I have begun and there is still pending in the Circuit Court of Sangamon County, a suit against all of the fire insurance companies, 133 in number, which are members of these unlawful combines, for the purpose of having the activities of these combines adjudged illegal by the courts, and an injunction decreed against them prohibiting the con- tinuance of their illegitimate operations. In my judgment there is no doubt that this will be the result of these suits if they are vigorously prosecuted. By the decision in the Fergus case (Fergus v. Russell, 370 111., 304), the prosecution of this litigation has been taken out of my control and placed in the hands of the Attorney General. The breaking up of these two illegal and monopolistic "combines" by the courts would , be of the greatest benefit to the People of this State. * This is the latest year for which the percentages have been worked out. See my special report on "Investigation of Fire Insurance. Conditions and Rates in Illinois (19W) •" 263 The fire insurance rates in Cook County are fixed ]?y a local organ- ization known as the Chicago Board of Underwriters of Chicago, in which the local insurance agents of the' city of Chicago are the control- ling factor. This organization has an "inspection bureau" of its own which makes the fire insurance rates for Chicago directly without any such subterfuge as the "Illinois Inspection Bureau" employed by the com- bines which control the remainder of the State. A quo warranto suit, against the Chicago Board of Underwriters with the object of having their purposes and methods declared illegal by the courts and said corporation ordered dissolved for abuse of its fran- chise, has been begun by the Hon. Maelay Hoyne, State's attorney of Cook County, in the Circuit Court of that county, and is now pending before Judge Walker. The results of this suit will be of the greatest importance to the people of the city of Chicago, because it will determine whether or not fire insurance companies or their agents can legally create and maintain a local monopoly for the purpose of fixing and maintaining fire insurance premiums in Chicago at the present exorbitant and dis- criminatory rates. PEEVIOUS STATISTICS "WOETHLESS. The only information that has been available up to the present time to ascertain whether or not fire insurance rates in Illinois, or in any part of the United States were just and equitable or not, were general figures furnished by the insurance companies. These, however, only gave the combined results of all classes of the fire business in the United States, or in a particular state. All that such figures disclose are the gross amount of premiums collected on all classes of risks, the total amount of losses in all classes combined, and the ratio between the two. The figures alone are absolutely worthless so far as showing the justice or injustice of rates as charged on different classes of fire risks, but do disclose the important fact that the expenses and profits of the fire insurance business in the United States for many years have, on the average, consumed about one-half of the premiums collected from the policyholders. But this does not take into account the large additional sums received by the fire insurance companies from premiums paid in advance, interest on capital stpck, banking profits, etc. When the income from these sources is added to the premiums received, the proportion of their income returned to policyholders for losses becomes. even smaller than one-half. There has not been and is not now furnished by the "combines" or any of the companies any means of ascertaining whether the premium rates on the different classes of property in the different loealities of the State are just and equitable or not. LAW ONLY PEEFUNCTOEILY BNEOECED. Fire insurance companies recognize that the risk or danger of fire is much greater in some classes of property than in others by charging different rates on different kinds of properly-, but there has not been any way for property owners to find out whether or not these differences in rates were proportionate to the actual differences of danger of fire in rela- tion to the different classes of property. To supply this deficiency, a law 263 was long ago placed in the Statutes of the State of Illinois relating to fire insurance, (Section 21 of the a6t of March 11, 1869), providing that the Insurance Superintendent shall make a classification of all the insurable property in this State into not less than four classes, and require annual reports of the experience of the fire insurance companies doing business in this State in each class. There has been heretofore only a perfunctory enforcement of this Jaw, fire insurance risks being divided into only four classes, and these such that no information of value could be obtained from statistics con- cerning them. It has been and is now plain to everyone acquainted with the facts that the fire insurance companies have charged, and now charge, excessive and discriminatory rates in this State on many kinds of prop- erty; but, in the absence of specific statistics on the various classes of risks it was, and is very difficult to point out and prove extortion in rela- tion to any particular class or classes. Consequently, I determined, more than two years ago, to adopt a complete and detailed classification of all fire risks in this State, and re- quire annual reports on results in each class. The so-called National Board of Fire Underwriters had adopted and promulgated about that time a classification of fire insurance risks for use for the purpose of keeping company statistics which was adopted by a large majority of the fire insurance companies doing business in this State. In order to avoid causing the companies the extra expense and the confusion liable to arise if they had to prepare two different sets of statistics, I adopted the Na- tional Board classification which separates all insurable property into about four hundred and eighty classes. Furthermore, it is recognized by everyone conversant with the fire insurance business, that the risk or hazard of destruction by fire on a given kind of property varies in different cities according to the fire pro- tection and other factors. The National Board of Fire Underwriters had also prepared a classification of the cities of the United States into ten grades according to fire hazard, degree of protection, etc. I also adopted this classification for the cities of this State for the same reasons that I adopted said National Board's classification of property risks, and required the companies to report their experience on each class of prop- erty risk in each grade of city in the State separately, as well as their experience on farm risks. This report was first required of the 1914 business, but there was considerable resistance to furnishing this, and the returns for that year were not complete. For the year 1915, however, complete returns were secured and the combined results which are con- tained in the tables given hereafter show the existence of very great in- justices and discriminations in fire insurance rates. Before giving the figures and discussing the results, a short expla- nation of the plan of the tables may be helpful to those not familiar with insurance statistics. EXPLANATION OF PLAN OF TABLES, LOSS EATIOS, ETC. The tables which follow are a compilation of the reports of all the joint stock fire insurance companies, and other fire insurance organiza- tions, which did business in Illinois during the year 1915. 264 The business of the different kinds of insurance organizations was reported separately as follows : (1) Joint stock companies; (2) Mutual companies; (3) Inter-insurers; (4) American Lloyds ; (5) London Lloyds. JFrom the reports of each of the above forms of fire insurance or- ganizations, tables were compiled giving the experience of each form of organization in each class of the Rational Board classification of prop- erty, in each grade of city in the State. Following the tables for each class of risks, totals are given of the business done in that class of risk by the different kinds of insurance or- ganizations. At the end are given also "grand total" tables which com- bine the statistics of the different classes in various ways for the purpose of presenting the combined results of all the fire insurance business in the State in convenient form for consideration. EPPBCT OP THE NUMBEE OP EISKS LST EACH CLASS ON THE VALUE OP PIEE INSUEANCE STATISTICS. The probability that the results given in the different tables will be similar in succeeding years depends primarily on the number of risks included in any subdivision of the tables, [if there is a large number of risks the probabilities are very strong that the results in succeeding years will be very much the same, but if the number of risks' is small, prob- ability is correspondingly less that "experience" in succeeding years wiU be similar. In those classes, however, in which there is a comparatively small number of risks, reliable figures can be obtained by continuing the compilation of figures for a number of years and then combining the results of all the years. It is, of course, very desirable that the compila- tion of all figures be continued for a series of years, but it is not neces- sary to wait a number of years before approximately reliable and trust- worthy results can be obtained in those classes in which there are a large number of risks in different grades of cities, such as dwelling houses, small store buildings, stables, etc. In these, results entirely trustworthy can be obtained in one year. The only factor which causes any noticeable variation in the loss ratio from year to year in the classes containing large numbers of risks is difference in the seasons. A dry summer or a severe winter causes a greater number of fires than a wet summer or a mild winter. The variation attributable to this cause is, however, comparatively slighi?\ Por this first year, many m the classes of the National Board classi- fication, further subdivided according to-gfades of cities, only contain a comparatively small total number of risks in Illinois which was too small to furnish any approximation to a reliable law of average. In such small classes, therefore, the figures for the different grades of cities in the State for each of the different kinds of insurance organiza- tions have not been printed. As an arbitrary rule for selecting which should be printed in detail, it was decided to print in full those classes 365 in grade three cities (Chicago) when the mimber of risks in either "buildings" or "contents" in this grade was 450 or more, and in the remaining classes of cities print full details only of those in which the average number of risks in each class in the grades of cities was 100 or greater. The totals, however, are separately given for each class. Therefore, when nothing but the totals appear it will be understood that the number of the risks in the various grades of cities did not come within the above rules, but in a few instances for special reasons some- what smaller classes than called for by said rules are printed in detail. In all of those instances ia which a part of the detailed statistics under the various classes of cities are omitted according to the above rules, the totals of such omitted statistics are also given following the detailed figures, and all are included in the grand totals which appear on pages . 451 et sq. All detailed statistics not printed are preserved in the rec- ords of the Insurance Department where they can be consulted at any time. When statistics accumulate after the lapse of a sufficient number of years to establish a law of average in each risk class in each grade of city, a compilation of complete statistics of all classes of risks in all the various grades of cities will be printed which will afEord complete information, in relation to all classes of risks in all grades of cities in the State. The publication at the present time, however, of detailed statistics in those classes in which insurance of a sufficient number of risks has not yet been effected to establish a law of average would afford no information of value and would be a needless expense. EXPLANATION OF TABLES. Each table is divided into two parts horizontally; the left side giving the figures for buildings and the right side for contents of^ same. Under each of these subdivisions, the first column gives the number of risks insured, the second the total amount for which the property in that class of city was insured, the third the premium paid for such insurance, the fourth the losses paid on the same, and in the fifth column is given the loss ratio. This loss ratio is the relation between the premiums charged and losses paid, or in other words, it is the percentage which the losses paid are of the premiums received by fire insurance companies. That is, if $100 was collected in premiums and $50 was paid out in losses, the loss ratio would be 50 per cent. If $100 was collected in premiums and $63.50 was paid out in losses, the loss ratio would be 63.5 per cent. LOSS KATIO. Lihe loss ratio is very important for it shows whether the rates charged by the fire insurance companies are excessive or reasonable. It should be noted, however, in this connection, that a high loss ratio shows that the rates are reasonable, and a low loss ratio shows that the rates are excessive. For example, if the loss ratio is 75 per cent, this means that 75 cents out of each dollar of premiums collected by the companies was returned to policyholders in payment of losses and 35 cents retained by 266 the company for expenses and profits. A 30 per cent loss ratio means that only 30 cents out of each dollar was returned to policyholders in payment of losses, and 70 cents retained for expenses and profltai The tables given below show that the latter exorbitant expense and profit is collected by the companies on many large classes of property, particu- larly dwellings in Chicago. This fact concerning the inverse relation of loss ratios and reason- able rates should particularly be kept in mind when examining the statistics of the mutual insurance compunies. It will there be seen that usually the loss ratio is higher in the mutual company statistics than in the stock company statistics. This does not mean that the results in mutual insurance are less favorable than stock company insurance, but tha,t the premiMm rates are. lower, so that a larger pro- portion of the premiums are returned to the policyholders in payment of losses. There are no grade 1 and. grade 2 cities in this State. Consequently, it will be noticed that the grades of cities are numbered 3, 4, 5, 6, 7, 8, 9 and 10. Chicago is the only city in the State of grade 3. The gradrss of all the cities in the State are given in Appendix "A," page 462. Following the grade ten cities, is a line giving totals which are the figures for all of the grades of cities in the State. The figures for the farm risks are given separately, beginning on page 444, and in the "grand total" tables found at the end, an extra line appears for the farm risks figures in addition to those for the different grades , of cities. BLANKET POLICIES. A large part of the biisiness of mutuals and inter-insurers is written as so-called "blanket policies" by which the building and the contents are insured together in one policy. Consequently, there is no means of knowing what part of the insurance is on the building and what part is on the contents. Mutuals and inter-insurers are allowed to report' such business as "blanket, policies" without segregating build- ings from contents. Such blanket policies appear in the statistics of a large number of classes but in most of these there were so few policies, that they were entirely inadequate to establish any law of average or be useful for any purpose whatever if printed separately. Accordingly, a selection has been made of all of those risk classes in which the number of "blanket policies" was 20 or larger, and the figures for each of these have been printed following the other figures for that class. The remaining blanket policies are summarized in a separate total which appears among the totals tables given on page 460, and are also included in the "grand totals" of all companies and all business on page 461. SPKINKLERED RISKS. For convenience in comparison, the statistics for the sprinklered risk classes are given immediately following the same risk class un- sprinklered, each sprinklered risk class having the number assigned to 367 it by the "National Board/"' Of course, this interferes with the placing of the statistics of all of the classes in numerical order, but an index is provided at the end of this report from which the figures for any class of property can be readily found. The unsprinklered risks are arranged in the order of the numbers assigned them by the "National Board" excepting farm risks which, for convenience of reference, are grouped together, following the business done in cities, beginning on page 444. The sprinJflered business statistics deserve special attention. These show that the loss ratio in this kind of business is extremely low being nothing (0 per cent) in many classes containing large numbers of risks.* DISCUSSION OF TABLE'S. One feature of these tables of great interest is the extraordinary wide variation in the loss ratios on different classes of property in the State. For convenience, a list arranged in numerical order of loss ratios, is given below of those classes containing over 500 risks in which the loss ratio is less than 40 per cent, and another of those in which the loss ratio is greater than 90 per cent. There are many other classes which show equal or even greater variations than these, but the number of risks being smaller, the probability is not so strong that the loss ratios in succeeding years will be the same. It is highly desirable, how- ever, that the collection of statistics be continued regularly so as to determine definitely what the loss ratio of such smaller classes is. TOO HIGH AND TOO LOW EATES BOTH WRONG. It is wrong for premium rates to be either too high or too low. In the first place, it is inequitable to charge the owner of a class of prop- erty which suffers Little or no destruction from fire a rate that exceeds what is necessary to pay the losses in such a class. The statistics given hereafter show that this condition exists at the present time in Illinois with regard to many kinds of property. On the other hand, the fixing of a rate on any class of property which is not suflBcient to pay its fire losses, is unjust and contrary to public policy. Such discrimination and favoritism is frequently accorded to big interests having large lines of insurance. Whether granted through favoritism or not, it amounts to collecting from owners of non- hazardous property to pay losses on extra-hazardous property, which is not only unjust, but worse, for it permits and encourages the owners of dangerous property to continue dangerous conditions. It is well known that in certain risk classes, a large part of the losses are criminal in their origin, the fires occurring, by the *act of and for profit of the owner. This is not only one of the inost heinous of crimes for it endangers adjacent property, and causes frequent loss of life, but makes careful owners pay for the losses of criminal origin. * The marvelous benefits of sprinklering risks and particularly their unique and extraordinary power ol preventing conflagrations are fully explained in my address, "Proteetmg the Congested Dis- tricts in Cftles," delivered before the National Convention of Insurance Commissioners at Monterey, Cal., September 27, 1916, and reprinted in my volume of Addresses and Papers on Insurance published by the State of Illmois, 1916, and distributed free to all citizens of the State requesting copies. 268 In certain other classes ol' risks where the losses exceed the pre- miums collected by the companies, the large fire losses may not be due to incendiarism by owners, but are due to the criminal carelessness of these owners and their refusal to install automatic sprinklers and oth^r modern methods of fire prevention. ]S"ine out of ten fires which occur in mercantile and manufacturing establishments, are absolutely pre- ventable by readily available methods. In establishments which ai'e properly equipped, with automatic sprinklers, wired glass windows, etc., the fire loss is less than one-tenth of those not so equipped. Negligent or obstinate owners cannot be excused on the ground that the expense of installing automatic sprinklers is prohibitive, because the reduction in insurance rates which can be obtained by the installation of effective automatic sprinklers, will alone pay for the installation of such a system in from three to five years. If the statistics collected concerning fire insurance are complete, and include the amount of premiums collected as well as the losses paid on each class of property, and the rates are thereupon adjusted accord- ingly, then owners of extra-hazardous property will be subject to a continuous and effective pressure to adopt these readily available modern methods of fire protection which will render their property practically immune from fire danger. It is a discouraging and discreditable but undeniable fact, however, that such a reduction of fire loss is the very thing which the insurance companies do not desire to see happen. If all mercantile and manu- facturing properties were sprinklered, the premiums from these very large classes would be reduced to less than one-tenth present amounts which would mean a proportionate reduction of commissions, salaries, profits from banking departments, etc. Following each loss ratio in these tables is given the cost to the policyholders of each dollar of indemnity repaid to them for loss. This can easily be obtained for any loss ratio by dividing the loss ratio into 100. The mathematics is plain when it is recalled that the loss ratio indicates the amount of cents in each dollar of premiums collected by the companies which they returned to policyholders in settlement of losses. Consequently, if the loss ratio is divided into one dollar, the result will be the amount each dollar of fire insurance indemnity received by policyholders cost them. 269 CLASSES CONTAINING OVEK 500 RISKS IN WHICH THE LOSS RATIOS ARE LESS THAN FORTY PER CENT. «■§§ earn o z Nam© of risk. No. of risks. Pre- miums. Losses. Loss ratio— per cent. What each dollar of indemnity repaid to policy- holders for losses cost the policy- holders. 498 898 878 810 806 13 1S2 8oe 112 3S4 2S8 609 620 818 253 278 663 426 674 654 636 678 300 191 133 143 154 484 814 177 660 192 842 116 886 476 635 848 160 Soap factories (when insured separately from packing bouse or other plants) Printing establishments, lithographers, hook- binders, sprinklered Grain elevators and warehouses, terminal, sprinklered Dry goods— woolens— carpets, etc., sprinldered. Department stores, sprinklered Dwellings and bams — sumnftr or winter only. . Leather— hides— harness and trunks— wholesale Department stores, sprinklered Boots and shoes— wholesale Breweries Warehouses, grain in sacks Blacksmith shops Club houses (city)— Y. M. C. A.— Y. W. C. A.- eymnasiums warehouses, not specifically classified, sprink- lered Miscellaneous (manufacturing establishments operated with machinery, not otherwise class. Ined), sprinklered Mercantile— miscellaneous, sprinklered Warehouses— cold storage Warehouses, whiskey Plumbing, gas fitting, locksmiths and tin sbop- Olass works Stockyards Marble and stoneyards with power and mills . . Garages (public) Street railway and traction properties, including storage and operating houses Agricultural implement factories and other factories having woodworking (principally hard) in conjunction with Ironwork, paint- ing, etc Telephone exchanges Gas and electric fixtures— lamps and chandeliers Hay— grain— feed— flour— seeds Liquors— wines— wholesale Potteries, brick, tile, plaster and crucible works, china decorating Groceries— wholesale only, sprinklered Rubber goods Lumber yards— wholesale and mill Telephone exchanges Hemp and jute mills— cordage and bagging factories, sprinklered Agricultural implement factories and other factories having woodworking (principally hard) in conjunction with ironwork painting, etc., sprinklered Clothing, hats, caps, furs and men's furnish- ings—wholesale Miscellaneous (manufacturing establishments operated with machinery, not otherwise class- ifledj, sprmklered Faint, varnish, white lead and oil color works, turpentine refineries, printing Ink works Garages (public) Moulding— turning-wheel— hub— spoke and spool factories— carpentershops (power), plan- ing mills— sash, door, blind and wooden box factories— dry houses, for lumber; saw mills, shingle, stave, lath, veneer and kindling wood mills— excelsior factories, sprinklered Leather goods (other than boots and shoes) — harness — trunks — ^retail 457 3,149 2,016 1,527 560 819 1,059 i,r-- 1,159 1,537 912 850 781 3,619 717 6,256 l,i 675 990 1,523 724 1,592 3,177 861 592 659 1,622 701 662 2,962 1,052 630 1,325 1,429 4,610 986 2,393 623 1,714 S 18,546 67,055 69,920 44,110 15,843 11,173 35, 122 79,094 24,673 81,985 16,383 13,466 23,425 63,576 30,699 111,265 18, 748 24,825 14,630 30,224 103,987 27,366 60,246 262,064 138,-542 19,127 9,220 13,926 14,467 32,843 12,764 7,864 92,686 27,860 16, 112 41,437 27,407 132,293 33,461 112,269 16,484 29,608 $ 80 12,086 1,680 1,532 604 4,475 2,050 6,424 1,733 6,195 1,310 1,106 1,953 4,495 2,833 11,145 1,902 2,503 1,758 3,716 13, 126 3,566 6,731 36,548 20,413 2,"- 1,471 2,220 6,891 6,729 2,240 1,408 16,799 5,060 3,018 7,i 6,355 28,145 7,293 24,483 3,479 6,674 2.8 3.5 3. 4. 6.8 6. 7. 7.5 8. 8.2 8.3 8.4 • 9.2 10. 10.1 10.1 12. 12.3 12.6 13.1 13. 13. 14.7 16.2 16.9 16.9 16.6 17.4 17.6 17.9 18.1 18.2 1&7 19. 19.5 21.3 2L8 2L8 ^2.3 22.6 270 CLASSES CONTAINING OVER 500 RISKS IN WHICH THE LOSS RATIOS ARE LESS THAN FORTY PER CENT— Continued. If 15 Name of risk. No. of risks. Pre- miums. Losses. Loss ratio — per cent. What each dollar of indemnity repaid to policy- holders for losses cost the policy- holders. 614 Bottling works for beers, mineral waters and soft drinks Hardware— iron and steel bars and piping- cutlery— surgical instruments— retail 651 Lumber yards— retail 9Ba Dwelling, brick, combustible roof 630 Exhibition buildingSr-carrousels— rinks— ^ir ground, race tracks, ball grounds, and similar amusement properties S22 Weaving mills (weaving and knitting only of cotton, wool or elastic goods), embroidery and lace curtain factories 130 Dry goods, etc.— wholesale 166 Uusical instruments— music— photographers' supplies — optical and scientific goods 262 War enouses— glass Miscellaneous— nonmanufocturing specials not otherwise classified ■ 9Bb Dwellings, brick, noncombustible roof Warehouses— general storage (not otherwise classed) 316 Planingmills— sash, door, blindand wooden box factories — dry houses for lumber 167 Offices and banks— sole or predominant occu- pancy 161 Millinray-feathers— artificial fiowers— retail 446 Laundries (band or power) 429 Grain elevators and warehouses, terminal 652 Lumber yards— retail 176 Restaurants 142 Hardware, etc.— wholesale 606 Barns and stables (public), livery, sale, bus, express, hotel and boarding Apicultural implement foctories and other ractories having woodworking (principally hard) in conjunction with ironwork, painting, etc 416 Electriclightandpowerplants(wheaseparately insured) 148 Jewelry— clocks— watches— silverware and bric- a-brac Clothing, cap and overall factories, collar, cufl, shirt, corset, waist and other white goods factories, sprinklered 610 Blacksmith shops 358 Canning and preserving works for fruit and vegetables 817 Mercantile— miscellaneous, sprinklered 106 Automobile and carriage salesrooms 11 Dwellings— palatial— of 150,000 value or more. . 102 Agricultural implements 474 Packing houses, slaughtering, rendering, oleo- margarine, lard, candle, crude glycerine and glue works 27 Schools and academies without dormitories 345 Bakeries — macaroni foctories Warehouses, general storage (not specifically classified) Schools and academies without dormitories 104 Artists' materials and art stocks— pictures and picture galleries 619 Club houses (city) Y. M. C. A.— Y. W. C. A.— 'gymnas'ums 175 Restaurants './.'.'.'.'.'.'. 123 Drugs— chemicals— medicines— retaii .......'. 180 Saloons (liquor) •. Miscellaneous— nonhazardous, sprinklered. . . S16 1,349 746 29,137 551 1,501 1,916 505 1,910 .64,916 3,153 2,500 4,452 684 1,523 i,r- 6,165 3,680 1,166 8,413 645 1,330 4,102 3,392 1,392 952 989 1,029 509 1,658 4,279 1,126 13,544 1,712 525 799 1,798 1,115 9,334 1,092 9,442 39,242 10,882 579,545 28,753 13,270 30,459 36,668 14,269 31,984 1,202,365 74,527 97,514 190,605 22,384 35,497 45,597 136,990 69,032 33,325 183,813 43,085 33,428 n,906 71,674 22,048 31,611 34,700 22,815 9,399 36,867 90,894 147,447 288,583 21,802 9,308 50,856 32,763 141,281 9,670 % 2,150 9,018 2,524 134,931 6,733 3,172 7,354 8,909 3,481 7,966 301,873 18,798 24,775 48,994 5,781 9,270 12,105 37,262 18,886 9,468 52,658 12,336 9,614 20,778 20,917 6,497 9,340 10,249 6,824 2,824 11,239 29,024 47,149 10,824 92,970 7,135 3,044 12,268 16,911 10,936 47,331 3,250 22.8 22.9 23.2 23.3 23.9 24.1 24.3 24.4 24.9 25.1 25.2 25.4 25.7 25.8 26.1 26.5 27.2 27.4 28.4 28.6 28.8 28.9 29.1 29.5 29.5 29.5 29.9 31.9 3L9 32.2 32.2 32.7 32.7 33.2 33.3 33.4 33.5 371 CLASSES CONTAINING OVER 500 RISKS IN WHICH THE LOSS RATIOS ARE LESS THAN FORTY PER CENT— Concluded. o3 US (111 9 m ui Name of risk. No. ol risks. Prem- iums. Losses. Loss ratio — per cent. What each dollar of indemnity repaid' to policy- holders for losses cost the policy- holders. 657 302 109 485 135 168 346 432 113 Motion picture shows Carpenter and cabinet shops without power — looking glass and picture frame factories- cooper shops Boots and shoes— retail Printing estahlishments, lithographers, hook- binderies. .*. Groceries, retail— meat— fish— butter — cheese- eggs— fruit and produce Offices and banks— sole or predominant occu- pancy Foundriesforiron brass, typeworkandstoves — furnaces— rolling mills Bakeries — macaroni factories Grain elevators and warehouses— country 179 60S Clothing, hats, caps, furs and men's furnishings —retail— merchant tailor— regalia— costumer — dressmaking , 117 514 118 268 156 108 420 122 12 Saloons (liquor). Barns and stables (public), livery, sale, bus, express, hotel and boardiifi Coniectionery— ice cream parlors Tobacco, cigars, cigarette and snuff factories Machine shops without foundries City andtown hal^— court bouses, state capitols, armories, fire department houses Confectionery-Ice cream parlors. Warehouses— household furniture Lodge and society r ooms Books — stationery— school supplies Flour mills Doors, sash, blinds— builders' materials. Dwellings— palatial— of $50,000 value or n 1,147 '•I 1,3 7,373 5, 2,191 1,932 5,035 1,694 4,714 4,232 1,084 1,036 3,163 1,027 4,272 3,704 3,179 1, 560 724 $51,520 37,025 15,400 40,746 175,982 86,795 66,402 38,125 143,120 44,965 158,419 118,821 2,844 18,215 96,712 30,507 58,536 38,889 37,100 33i575 46,771 10,295 11,622 $17,297 12,508 5,207 13,797 59,986 29,733 13,456 50,088 15,967 56,461 42,464 10,459 6,721 35,736 11,433 21,959 14,983 14,333 13,004 18,211 4,062 4,612 33.8 33.8 34.2 34.2 34.6 35. 35. 35.5 35. 35.7 36.7 37.6 37.5 38.5 38.6 38.7 38.9 39.4 39.7 $2 98 2 96 2 96 2.95 2 92 2 92 2 82 2 81 2 80 2 72 2 72 2 71 2 67 2 67 2 60 2 59 2 58 2 57 2 54 2 52 272 CLASSES CONTAINING OVER 500 EISKS IN WHICH THE LOSS EATIO EXCEEDS NINETY PER CENT. 11^ hi Name of risk . No. of risks. Prem- iums. Losses. Loss ratio — per cent. What each dollar of indemnity repaid to policy- holders for losses cost the policy- holders. 172 323 338 164 390 1 186 6SS 120 329 101 128 134 4 162 264 184 623 196 188 187 Paper (excludii^ statioaery). This class in- cludes new stocks of finished paper and has noreterence to jtmk or old paper stocks Automohile factories Stamping works— tin, hollowware, iron hed^ stead, gas fixtures, lamp and iron toy facto- ries— Japanneries Millinery, etc. — wholesale Coal tipples and top works— bituminous Bams and stables— private (other than farms).. Stores— general (village or city), usually carry- ing larger values than in country stores, with mixed stocks, but less complete or varied than in departanent stores Miscellaneous— nonmanufacturing specials not otherwise classified Crockery, chine and glassware Machine shop (with focmdries connected) bo ler shops, nut and bolt works, bicycle and firearms factories, locomotive works, wu-e- working and drawing Steam railway risks (excluding merchiuidise for other parties in freight houses) Agricultural implements Dry goods— woolens— carpets and notions — Chinese and Japanese goods— retail Gas and electric fixtures— lamps and chandeliers Churches and chapels Millinery— feathers— artificial flowers— retail Warehouses — ^liay , straw — ^broom corn Stores — country (remote or cross road) usually of moderate or small values Packing houses, slaughtering, rendering, oleo- margarine, lard, candle, crude glycerine and glue works, sprinklered Coal and wood yards— coal trestles Tobacco, etc.— wholesale Stores— department. Usually includes all classes of retail goods required for the person or the household— notable furniture, crockery and sometimes exhibition and entertainment halls and restaurants Department stores. Usually includes all classes 01 retail goods required for the person or the household— notably furniture, crockery and sometimes exhibition and entertainment halls and restaurants 884 1,163 538 847 32,419 9,214 698 958 1,331 577 723 12,123 1,692 2,346 2,199 1,122 2,133 527 520 702 3,363 522 S 24,736$ 22,463 35,008 32,030 14,052 41,306 121,819 222,314 16,346 19, 139 44,940 150,707 13,418 212,723 31,289 34,484 29,468 19,151 41,037 23,010 12,576 17,160 93,663 19,645 32,081 29,326 13,194 39,427 118,490 216, 149 16,256 19,131 45,688 158,816 14,227 227,766 33,969 42,613 37,617 25,219 55,495 31,353 18,216 26,704 219,305 73,211 90.8 91.6 91.6 93.9 97.2 97.3 99.4 101.6 105.4 106. 107. 108.6 124.7 127.5 131.7 135.2 136.3 144.8 155.6 234.2 372.7 SI 10 1 09 1 09 1 06 1 04 1 02 101 1 00 94 94 93 92 78 75 73 69 64 42 26 I have given in the ahove table those classes in which the loss ratio was over 90 per cent as not having high enough premium rates. In reality, however, an average loss ratio of less than 100 per cent means that the rates on such class is too high, for, as I have, fully explained elsewhere, if the insurance business was conducted without an unneces- sary competitive agency system, and persons desiring insurance came to a local office of the insurance company and made application for insurance as a depositor brings his money to a bank, then the insurance companies' necessary expenses could be paid in the same way that the banks' expenses are paid — by interest collected on funds loaned or invested. Fire insurance premiums are paid in advance, and are held 273 by the insurance company much longer, on the average, than deposits are by banks, so that the income from interest out of which expenses could be paid would be larger than in the case of banks. PROPERTY OWNERS SHOULD INVESTIGATE RATES. It is earnestly recommended that every property owner in the State carefully examine the tables showing premium rates and losses, and, by means of the index as explained below, find out whether or not equitable rates are charged on the kind of property which he owns. The studying of the subjoined tables by persons who pay fire insurance premiums, either directly or iudirectly, will afford interesting and valuable information. The cautions given above with reference to number of risks necessary .to afford conclusive results should, of course, be kept in mind. But as the statistics of successive years of fire insur- ance experience are cumulated, the result in classes containing small numbers of risks will also become conclusive. The results shown by this report of the 1915 business are definite as to those classes comprising large numbers of risks, such as dwelling houses, barns, small mercantile establishments, drug stores, saloons, etc., and disclose that extortionate overcharges and other grave injustices exist in the fire insurance rates now charged in Illinois by the combine companies. These results also prove the necessity and the inherent fairness of such a law as the present Texas fire insurance law according to which fire insurance rates for that state are fixed by a state commission in the same way the public utility rates are fixed in Illinois by our Public Utilities Commission. Under the Texas law, statistics of fire losses are collected both as to different classes of risks and also of each of the cities of the state, and fire rates on each class and in each city fixed accordingly. When improvements are made in water supply, fire fight- ing facilities, etc., which result in a lower fire loss, such classes or cities receive prompt credit in lowered insurance rates. If a city by negli- gence or otherwise allows fires to become more numerous and costly, its insurance rates are raised accordingly. This forms the strongest pos- sible incentive for effective fire preventive measures. We seriously need a similar law in Illinois. ADVANTAGE OF UNIFORM STATISTICS FOR THE WHOLE UNITED STATES. If a uniform plan of collecting such statistics as are given in this report was adopted throughout the United States, then the number of risks in each class would be so large that one year's statistics would give decisive results on nearly all classes. It would not, be difficult to grade all cities in the United States into ten classes, in each of which the danger of fire was approximately the same. In fact, such grading has already been partially earned out by the self-styled "National Board of Fire Underwriters." —18 P S 374 If such uniform statistics were collected throughout the United States, then equitable fire premium rates could be determined in one year in nearly all classes, and in a very few years in the remainder. On dwelling houses and other classes containing numerous risks the experience in each state would be sufficient for fixing rates for such state, and for the classes with few risks the experience of adjacent states or even of the whole United States could be used subject to modifica- tion if, after several years, the average results in a particular class in a particular state were different from the average results on such claas throughout the United States. I earnestly recommend the adoption of some uniform and complete plan for collecting fire statistics to the insurance departments and legislatures of every state in the Union. USE OP INDEX. Any one desiring to ascertain the results of the kind of property which he owns should consult the index where he will find the pages on which the figures are given for each kind of property. On turning to such page, the statistics for the class of property in which the owner's particular kind of property is included will be found, arranged separ- ately for each grade of city whenever there are enough risks to justify this as explained heretofore. The grade of any city can be found by referring to the list which is printed at the end as appendix "A." zn TABLES COMPILED FROM AND CONTAINING THE INFOR- MATION IN ALL THE SWORN CLASSIFICATION RE- PORTS OF ALL THE JOINT STOCK FIRE INSURANCE COMPANIES, MUTUAL FIRE INSURANCE COMPANIES, INTERINSURERS, AMERICAN LLOYDS, AND LONDON LLOYDS DOING FIRE INSURANCE BUSINESS IN THE STATE OF ILLINOIS FOR THE YEAR 1915. Note. — Each class of 'buildings and the contents of same have dif- ferent successive numbers assigned in the "National Board" classifica- tion, the building being given the odd number and the contents the even number. For example : Class Nos. 1 and 2, Bams and Stables — ^private (other than Farms). Class Nos. 109 and 110, Boots and Shoes — retail. In the titles of the classes below both numbers will first be given followed by the class name describing the kind of property. Dwelling house classes are further subdivided according to material and kind of roof as indicated in the titles of the subdivided classes. The headings of tables show plainly which figures are buildings and which are con- tents. It will also be understood where totals are given for other than the kinds of insurance organizations for which detailed statistics are given that only those kind of other insuring organizations did business in that class whose names are included in the title of such total. When no figures are given for totals of any other kind of insuring organiza- tion following detailed statistics for one or more kind of insuring organizations, it will be understood that there was no business done in this class by any other kind of insuring organization than the kind or kinds for which the detailed statistics are given. The line which is drawn under a few figures means that these are minus amounts in the algebraic sense; that is, instead of representing numbers greater than zero they represent numbers less thau zero. 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CJ. g* dJ QJ C^ »H m i=l 0^5 2 ij -rt »i=1 c3 bfl bl) Q ra Pi f o r n -4-1 u O -M u bo 0? Kl O hn . m ^ O OJ 03 O ^ •— t OS ••-H a> 6 ■;« « Sw T~l l—t S h ° "^ ■'? t!! m d 1^ » 2 S ,a >>S a> Id .d « ™ ■U rt CIS ® vn+^-d ,d °S C7 "H aj CD I. d o fi w ■« d '-' |.ssS iz; 0-° d d rt c8 1 •!-• IH S'S d 462 APPENDIX A. GRADING OF ILLINOIS CITIES AND TOWNS ON THE NATIONAL BOARD PLAN. The first alphabetical list gives the classification number of all cities, towns, etc., in Illinois, outsiSe of Cook County as furnished by the National Board of Fire Underwriters, according to their .classification applying to all cities, towns, etc., in the United States. The cities marked with a "*" (which includes all over 5,000 population and 29 under 5,000), were in- spected and graded in 1916 by the engineers of the National Board. The remainder have the National Board grading determined by it from the data of the Illinois Inspection Bureau. The second alphabetical list gives the grades of the cities and towns in Cook County according to the Chicago Board of Underwriters, but with grades on the National Board plan. Property insured in small villages and hamlets whose names da not appear in the lists given below should be reported in No. 10 grade. N.B. Name of city. Grade. Abingdon, Oct., 1910 7 Absher. June, 1913 10 Adair, We, 1914 10 Addison, Jan., 1912 10 Akin, Sept., ms 10 Albany, Sept., 1903 10 Albers, May, 1912 10 Albion, Mar., 1909. 9 Aledo, Sept., 1912 7 Alexander, Jan., 1912 10 Alexis, Sept., 1911 8 Aleonquin, Mar., 1910 7 Alhambra, Apr. , 1906 10 Allendale, Aug., 1913 10 Allerton, Apr. , 1906 10 Alma, Nov., 1906 10 Alpba, Jan., 1912 9 Altamont, Apr., 1914 9 Alton*, 1916 7 Altona, Jan., 1904 10 Alto Pass, Feb., 1914 10 Alvin, May, 1906 10 Amboy, July, 1908 8 Anchor, May, 1905 10 Ancona, Apr. , 1907 10 Anna, Apr., 1913 8 Annawan, Apr., 1907 9 Antiooh, Oct., 1915 8 Apple River, June, 1906 9 Areola, Jime, 1903 7 Area (formerly Roc)ceteller).10 Arena viUe, June, 1906 10 Argenta, Mar., 1915 10 Arlington, May, 1907 8 Acmlngton, Jan., 1915 10 Armstrong, Sept., 1905 10 Aroma, June, 1909 10 Arrowsm th, Feb., 1909 10 Arthur, Sept., 1915 8 Ashkum, Dec, 1905 10 Ashland*. 1916 9 Ashley, Mar.,1908 10 Asbmore, July, 1905 10 Ashton, Sept., 1915 8 Assumption*, 1916 7 Astoria, May, 1914 8 N.B. Name of city. Grade. Athens, Aug., 1904 10 Athensville, Sept., 1908 10 Atkinson, Aug., 1912 9 Atlanta*, 1916. 9 Atwood, Jan., 1910 10 Auburn*, 1916 9 Augusta, Apr., 1903 10 Aurora*,1916 6 (Reprint Sept. 10.) Ava, June, 1907 10 Annapolis, Mar., 1915 10 Aviston, Jan., 1906 10 Avon, Mar., 1914 9 Baldwin, Feb., 1909 10 Bardolph, Mar., 1907 9 Barry Apr., 1906 7 Batavia, Oct., 1908 7 Batchtown, Jan., 1908. 10 Batestown, (See Danville). . . 5 Bath, Oct., 1908. 10 Baylis, Apr., 1906 10 Beardstown*, 1916 7 Beason, Nov., 1914 10 Beaver ville, (Jet. , 1908 10 Beckemeyer, Mar., 1909 10 Beecher, Aug., 1911 8 Beecher aty, Feb., 1909..... .10 Beech Ridge, (See Cache) 10 Beechwood. (See Mounds). . . 7 Belknap, M:ar. ,1905 10 Belle R ve, Aug., 1914 10 Belleville*, 1916 6 Bellflower, Dec., 1908 10 Bellmont, Apr., 1906 10 Belvidere*, Aug., 1908 7 Bement, Dec, 1909 8 Benbow City, (See Wood River) 10 Benld*,1916 9 Bensenville, Mar. 1914 9 Benson, May, 1904 9 Benton, Feb., 1914 8 Berwick, Apr., 1903 10 Bethalto, May, 1913 10 Bethany, Jan., 1910 10 N.B. Name of city. Grade. Biggsville, Sept., 1912 10 Big Rock, Sept., 1906 10 Birds, Oct., 1908 10 Bishop Hill, Jan., 1912 10 Bismarck, Dec, 1908. 10 Blaokstone. Jan., 1909 10 BlandlnsvUle, May, 1905 10 Bloomington*, 1916 6 Blue Mound, Mar., 1910 S Bluffs, Apr., 1906 10 Bluford. July, 1913 10 Bondville, Aug., 1913 10 Bone Gap, June, 1912 10 Boivbonnais, May, 1909 8 Bowen, July, 1907. 10 Braceville, Nov., 1909 9 Bradford, May, 19(^7 7 Bradley, Mar., 1906 8 Braidwood, Feb., 1915 8 Breese,Aug.,19li 8 Bridgeport, Apr., 1914 8 Brighton*, 1916 9 Brimfield, Jan., 1906 9 Brisbane, (See Joliet) 6 Bristol, Jan., 1912 10 Broadlands, May, 1906 10 Broadwell, Nov., 1914 10 Brocton, May, 1910 9 Brooklyn, Mar., 1909 8 (St. Clair County) Brooklyn, (See SouQi Wil- mington) 10 Brookport, Dec, 1907 7 Brougbton, June, 1905 10 Browning, Aug., 1908 10 Browns, Mar., 1906 10 Brownstown, Oct., 1913 9 Brussels, Dec, 1912 10 Bryant, Oct., 1909 10 Buckingham, Sept. ,1909 8 Buckley, June. 1911 8 Buda, July . 1912 8 Buffalo, July, 1906 10 Bullplt and Klncald, Jan., 1915 10 Buncombe, Dec. , 1912 10 463 N.B. Name of city. Orade. Bunker Hill, Apr., 1906 9 Bureau, June, 1909 9 Burlington, July, 1912 10 BushTJune, 1913 10 Bu3hiiell,Mar.,1912-. 8 Butler, Apr., 1907 , 10 Byron, Dec, 1913 8 Brereton, (See Canton) 10 Cabery, Jan., 1915 9 Cable, Apr., 1903 9 Cache, Dec, 1904 10 Cairo*,1916 6 (Reprint, Dec, 1912.) Caledonia, Mar., 1906 10 Camareo, May, 1906 10 Cambridge, Apr., 1913 8 Cameron. Mar. , 1903 10 Campbell HiU, Oct. , 1908. .. . .10 Camp Grov^.Sept., 1903 10 Camp Point, July, 1908. 9 Campus, Apr., 1907 8 Canton*, 1916 7 Capron, Mar., 1906 8 Carbondale*, 1916 9 Carbon Hill, (See Coal City).. 9 Card £E, June, 1912 9 Carlinvllle*, 1916 9 Carlock, Nov., 1914 10 Carlyle, Mar., 1913 8 Carman, Feb., 1903 10 Carmi, Oct., 1903 7 CarpentersviUe, Nov., 1908. . .10 Carriers Mills, Feb., 1909 10 Carrollton*, 1916 7 Carterville, Mar., 1906 9 Carthage, Dec, 1911 8 Gary Station, Sept., 1915 7 Casey, Nov., 1907 8 Caseyville, Apr., 1909 10 Castleton, April, 1907 10 Catlin, Sept., 1915 10 Cedar Point, 1913 8 Genterville Station, Nov., 1909 10 Central C ty, (See Centra- lia) 10 Centralia*. 1916 8 Cerro Gordo, Nov.. 1909 8 Chadwick, Mar., 1910 8 Chambersburg, July, 1912 — 10 Chamness, June, 1913 10 Champaign*, 1916 5 Chana, Sept., 1909 10 Chandlerville, June, 1906 10 Chapin, Apr.,1906 10 Charleston*, 1916 8 Chatham, Aug., 1906 10 Chatsworth, Feb., 1906 8 Chebanse, Sept. , 1911 9 Chenoa, Apr., 1913 8 Cherry, Apr., 1915 8 Cherry Valley Apr., 1908 10 Chester, Nov., 1910 8-10 Chesterfleld, Aug., 1906 10 Ctiillicothe,May,1910.. ....... 7 Chrisman, July, 1912 8 Christopher, Apr., 1908. 10 Casco, Mar., 1907 10 Clsne, July, 1914 10 CIssna Park, Feb., 1914 8 Clank, (See Olive Branch). . .10 Clarke City, Jan., 1909 10 Clarksdalo, May, 1914 10 Clay City, Nov.. 1908 10 Clayton, July, 1908 9 Clifton, Aug. , 1907 10 Clinton*, 1916 8 Coal City, Apr., 1910 8 Coal Valley, July, 1913 9 Cobden, March. 1914 9 Coffeen, Aug., 1908 10 Colchester, Jan., 1906 9 Colfax, Feb , 1911 8 N.B. Name of city. Grade. Collinsville*, 1916 8 Collison, Mar., 1906 10 Columbia, Mar. , 1909 9 Colusa, Aug., 1912 10 Compton, Mar., 1907 8 Concord, Oct., 1913 10 Cooksville, Jan., 1909. 10 Cordova, Mar., 1907 10 Corinth, June. 1913 10 Cornell, Feb., 1909 10 Cortland, Jan., 1912 10 Coulterville, June, 1907 10 Cowden, July, 1907 10 Crab Orchard, June, 1913 10 Creal Springs , Feb. ,1909 10 Colp, Mar., 1915 10 Chestnut, Mar., 1915 10 Crescent City, Feb. , 1908 8 Creston, July, 1908 8 Crete, Jan., 1905..: 8 Cros-sville, Mar., 1906 9 Crystal Lake, Oct., 1915 7 euba, Nov., 1909 10 Cullom, Nov., 1909 8 Custer Park, Dec. , 1905 10 Cutler, Aug., 1914 10 Cypress, Mar., 1905 10 Dahlgren, Sept. , 1910 10 Dakota, Aug., 1911 10 Dallas City, Mar., 1913 7 Dalton, City, June, 1905 10 Dalaell, July , 1909 10 Danforth, Feb., 1906 9 Danvers, Feb., 1908. 8 Danville*. 1916 5 Darmstadt, Sept., 1909 10 Davis. Apr. , 1907 10 Davis Junction, June, 1911. . .10 Dawson, Sept., 1908 10 DeCamp, (See Staunton) 10 Decatiu-*, 1916 6 (Reprint May, 1911.) Deer Creek, Nov., 1914 9 Deerfleld, Jan., 1910 10 DeKalb*,1916 5 DeLand, Apr., 1912 10 Delavan, Apr., 1904 7 DePue, Sept., 1907 7 DeSoto, Mar., 1909 10 i Dewey, June, 1914 10 Diamond, (See Coal City) 10 Dieterioh, Feb., 1914 9 Divernon, Sept., 1906 10 Dixon*, 1916 7 Dongola, Feb., 1914 10 Donnellson, Aug. , 1907 10 Donovan, Jan., 1910 8 Dorrisville, Oct., 1912 10 Douglas, May, 1914 10 (Knox County) Douglas, (See Smitbton) 10 Dow and Newbern, Sept., 1912 10 Downers Grove, Jan., 1910. .. 7 Downs, Apr., 1913 : 10 Dundee, Aug., 1908 8 Dunfermline, (See St. David) 9 Dunlap, Jan., 1913 10 Dupo, Aug., 1912 9 DuQuoin*. 1916 8 DiU"and, Nov., 1908 9 Dwight, June, 1913 8 Dana, Apr., 1915 10 Earlville, June, 1913 8 East Alton; Apr. , 1909 10 East Carondelet, Apr., 1909. .10 East Dubuque, July, 1904 — 7 East Lynn, Mar. , 1910 10 East M^line, June, 1909 ...... 8 (Reprint, July, 1916.) Easton, May, 1906 9 East Peoria, Aug. , 1909 9 N.B. Name of city. Grade. East St. Louis*, 1918 4 Edgemont and French Vil- lage, June, 1909 10 Edgewood, June, 1913 10 Edmburg*,1916 9 Edwardsville*, 1916 7 Effingham, Sept., 1910 7 Egan, May, 1911 10 Elbum, Sept., 1906 8 Eldorado, Feb., 1909 9 Eldred, Jan., 1913 10 Eleanor, Jan., 1903 10 Elgin*, 1916 6 Elizabeth, Jan., 1910 9 El zabethtown. Mar., 1913... .10 Elkhart, Nov., 1914 10 Elkville, Apr., 1908 10 Elliott, May, 1905 10 Ellis Grove, Nov. , 1904 10 EllisviUe, May, 1906 10 Ellsworth, Nov., 1910 10 Elmhurst, Oct., 1910 8 Elmwood, July, 1910 7 El Paso, Mar., 1904 7 Elwood, Jan., 1913 10 Emden, June. 1905 10 Emington, Apr., 1907 10 Enfield, Apr. 1912 10 Eola, Apr., 1912 10 Equality, Feb., 1909 10 Erie, Oct., 1911 9 Essex, Jan., 1906 9 Eureka, Apr., 1904 8 Evansville, Oct , 1908 9 Ewing, May, 1906 10 Fairbury, May, 1913 8 Fairdale, June, 1911 10 Fairfield, Aug., 1914 7 Fairland, May , 1903 10 Fairmount, May, 1914 10 Falrviewj May, 1912 10 Farina, Feb., 1906.. 10 Farmer City, Feb., 1911 8 Farmersville, Sept., 1908 10 Farmington, Oct., 1908 7 Fayetteville. July, 1909 10 Ferris, Jan., 1903 10 Fiatt, May, 1912 10 Fieldon, Dec, 1912 10 Fillmore, Jan., 1908 10 Findlay , May, 1906 10 Fisher, Oct., 1914 9 Fithian, Feb., 1908 10 Flanagan. Mar., 1904 9 Flat Rock, Feb.,J913 10 Flora, Jan., 1913 8 Floraville, Jan., 1912 10 Foosland, Jan., 1912. 10 Fore-st City, Oct., 1908 10 Forrest, Mar., 1904 8 Forreston, Sept., 1908 8 Forsyth, Jan., 1912 19 • Fox Lake, May, 1909 9 Frankfort, Oct., 1908 8 Franklin, Nov. , 1913 10 Franklin Grove, June, 1906... 8 Freeburg, Nov., 1909 8 Freeport*. 1916 5 French V.llage, (See Edge- mont) 10 Fulton, Oct., 1911 7 Galatia, May, 1905 10 Galena, July, 1904 7 Oalesburg, 1916 6 Galesville, June, 1914 .10 Galva, Dec, 1914 7 Garden Prairie, May, 1908 10 Gardner, Nov., 1909 9 Garrett, Apr. ,1908 10 Gays, June, 1914 10 GeS,Aug^l914 10 Geneseo, Feb., 1908 7 464 N. B. Nameofdty. Orade. Genoa, Sept., 1908 7 Geneva, Apr., 1909 7 Georgetown, July, 1905 10 Gerlaw, Jan., 1903. 10 Germantown, Jan. ,1912 8 (Clinton County.) German Valley, Mar., 1914. . . 9 Gibson City, Nov., 1905 7 (Reprint, Dec., 1910) Giflord, Nov., 1905 10 GJberts, May, 1909 10 Gilchrist, (See Viola) 10 Gillespie*, 1916 9 Gilman, June, 1914 7 Gilson, Jan., 1903 --..10 Girard*,1916 9 Gladstone, Deo. , 1913 10 Glasford, Jan., 1912 10 Gleii Carbon, May, 1909 10 Glen EUyn, June, 1909 8 Golconda, Apr. , 1906 .9 Golden, Mar., 1909 10 Golden Gate, Feb., 1911 10 Good Hope, Dec, 1902 10 Goreville, May, 1906 10 Gorbam, Mar., 1913 10 Grafton, Feb. , 1908 10 Grand Chain, Apr., 1911 10 Grand Eidge, July, 1909 10 Grand Tower, Sept., 1909 10 Granite City* 1916. .. .■ 6 Grant Park, July, 1905 8 Grantsburg, Apr., 1906 10 Granv lle,.May, 1912 8 Grape Creek, Deo. , 1911 10 Ctrayslake. Mar., 1915 7 Grayville, Feb., 1904 7 GreenSeld; June, 1906 9 Greenup,- Aug., 1903 7 Green Valley, May, 1905 10 Greenview, July, 1904 8 Greenville, June, 1904 7 Gridley, Jan., 1906 9 Griggsville, June, 1912 9 Hamburg, Oct., 1912 10 Hamilton, Oct., 1913 8 Hammond, Oct., 1903 10 Hampshire, Apr., 1913 9 Hampton, Sept., 1911 lo ' HanaTord, Aug., 1913 10 HannaCity, May, 1912 lo Hanover, Mar., 1905 10 Hardin, Jan.. 1908 10 Harrisburg*,rai6 8 Hartsburg, Mar., 1913 10 Harvard, May, 1908 8 Harvel*,1916 9 Harmon, Oct., W15 9 Havana, Sept., 1910 7 Hebron, July, 1909 8 Henderson, May, 1914 lo Hennepin, Mar., 1906 9 Hennlng, Aug., 1905 10 Henry, Mar., 1904 7 Herrfck, May, 1907 10 Herrin*, 1916 8 Herscher, June, 1903 9 Hersman, Mar. ,1903 10 Hottick, Nov., 1908 10 Heyworth, Mar., 1909 9 Hicks Junction*, (See Spring Valley) 8 Hidalgo, Feb., 1911 10 Highland, Feb., 1910 9 Highland Park, Aug., 1909. .. 7 Highwood, Aug. , 1909 7 HiUsboro*,1916 7 Hillsdale, June, 1914 9 HiUview, Jan., 1908 10 Hmckley, May, 1903 7 Eindsboro, Apr., 1906 9 Hmsdale, Augy 1909 7 Hodges Park, Jan., 1905 10 N.B. Name of city. Orade. Holcomb, Aug., 1908 10 Homer, July, 1908 9 Hoopeston, 1916. 8 Hooppole, Deo. , 1911 10 Hopedale, Aug. , 1914 8 Horseshoe Lake, Jan., 1910... 10 Hoyleton, May, 1905 10 Hudson, Apr., 1911 9 Hull, Sept., 1905 9 Humboldt, Mar., 1910 9 Hume, Mar., 1910 9 Hunt, Oct., 1914 10 Huntley. July, 1908 8 Hurst, May, 1913 10 Hutsonville, July, 1905 9 IUiopolis*,1916 9 Ina, llay, 1906 10 Indianola,J^.,1906 ^ 10 Industry, June, 1914 10 Ingraham, Oct., 1914 10 lola, July, 1903 10 Ipava, Oct., 1910 9 Iroquois, May, 1915 9 Irving, June, 1907 10 Irwin, Mar., 1913 10 luka, Nov., 1908 10 Ivesdale, June, 1915 9 Jacksonville*, 1916 6 Janesville, July , 1908 10 Jerseyville, May, 19J3 7 Jewett, Aug., 1908 10 Johnsonville, Nov. , 1908 10 Johnston City, May, 1908 7 Joliet*,1916 5 Jonesboro, Jan., 1905 10 Joppa, Apr., 1911 9 Joy, Jan., 1913 10 Junction, Jan., 1912 10 Eampsville, Jan., 1913 10 Kane, Jan., 1908 10 Kangley, Apr., 1905 10 Kankakee*, 1916 6 Kansas, July, 1915 8 Kappa, Dec, 1908 10 Kasheer, Mar., 1906 10 Keensburg, Mar. ,1906 10 Keithsburg, Oct., 1911 7 Kell, Jan., 1912. 10 Kemp, June, 1903 10 Kempton, June, 1903 9 Kenney, Idar. , 1911 9 Kewanee*, 1916 7 Keyesport, Apr., 1909 10 Kilbourne, June, 1905 10 Kincaid, (See Bullpit) 10 Kinderhook, Mar., 1913 10 Kingston, July, 191 ■ 8 Kinmundy, May, 1905 9 Kinsman, Apr., 1907 8 Kirkland, Sept., 1908. 9 Kirkwood, May, 1904 8 Knoxville, Aug., 1907 7 Kortkamp, (See HiUsboro), 1916 7 LaClede, Nov., 1904 10 Laoon, Mar., 1904 ^ Ladd, July, 1906 8 LaFayette, Oct., 1905 lo LaFox, Jan., 1903 lo LaHarpe, Oct., 1911 7 LaHogue, June, 1911 ;...]0 Lake Bluff, Feb. , 1909 9 Lake Forest, Aug., 1909 7 Lake Villa, Jan. , 1910 10 Lakewood, May, 1914 lo Lake Zurich, Mar., 1913 8 LaMoille, Mar., 1907 10 Lanark, July, 1908 g LaPlace, June, 1913 lo LaEose, Dec, 1908 lo N.B. Nameofdty. Grade. LaSaUe*, 1916 8 Latham, Aug., 1905 10 Lawrencevilie, July, 1908 8 Leaf Eiver, June, 1911 10 Lebanon, July, 1909 10 Lee, Sept., 1906 8 Leland, May, 1906 9 Lena, May, 1908 8 Lenzburg, May, 1909 9 Leonore, Sept. ,1909 8 Lerna, Jan., 1905 lo LeEoy, Mar., 1906 8 (Reprint, Dec, 1910.) Lewistown, Oct., 1904. 7 Lexington, June, 1906 8 (Eepr nt, Feb., 1911.) Liberty, Aug., 1915 10 Libertyville, Jan., 1906 S Lima, Oct., 1911 10 Lincohi*,M16. 7 Lintner, June, 1913 10 Lisbon, Sept., 1909 10 Litchfield*, 1916 7 Literberry, May, 1906 10 Little York, Aug., 1912 9 Livingston, Feb., 1913 10 Loami, Aug., 1906. 10 Lockport, Aug., 1904 7 Loda, June, 1907 10 Lodge, Dec, 1902 10 Lomax, Feb., 1914 10 Lombard, Oct., 1913 S London Mills, Aug., 1905 8 (Eeprint, Mar., 1912.) Long Fomt, Apr., 1907 10 Loogview, May, 1906. 10 Loraine, Apr., 1912 9 Lostant, Nov., 1914 8 Louisville, Mar., 1904 9 Lovington, Jan., 1910 8 Ludlow, Jvme, 1907 10 Lyndon, Nov., 1914 10 Lynnville, Apr., 1906 10 Loogootee, Mar., 1915 10 Mackinaw, Oct., 1913 8 Macomb*, 1916 8 Macon, July, 1905 10 Madison*, 1916 7 Magnolia, Aug., 1907 10 Mahomet, Jan., 1909 10 Makanda, Oct., 1913 10 Maiden, Apr., 1907 9 Malta, Oct., 1906 9 Manchester, Feb., 1914 10 Manhattan, Feb., 1909 8 Manito, Aug., 19()8 10 Mansfield, Aug. ,1905 10 Manteno, May, 1904 8 Maple Park, Sept., 1906 8 Maquon, Feb., 1906 10 Marengo, June, 1908 8 Marine, Apr.. 1909 9 Marion*,ai6 7 Marissa, Apr., 1909 9 Mark, July, 1913 8 Maroa*, 1916 8 Marquette, (See Spring Val- ley) 8 Marseilles, Sept., 1904 7 Marshall, Sept., 1903 7 Martinsville, Apr., 1914 10 Martinton, Apr. , 1912 9 Maryville, May, 1910 9 Mascoutah, Sept., 1909 8 Mason, June, 1913 10 Mason City, May, 1904 8 Mathersville, Jan., 1912 10 Mattoon*. 1916 7 Maunie, Jan., 1912 10 Mayview, June, 1913 10 Mazon, July, 1909 9 MoHenry, Aug., 1904 8 McLean, Mar., 1909 10 465 N. B. Name of city. Grade. UcLeansboro, May, 1911 7 Meadows, Oct., 1914 10 Mechanicsburg, Apr., 1906 10 Media, June, 1915 10 Medora, Aug., 1906 10 Melvin, Mar., 1913 8 Mendon, Sept., 1911 9 Mendota, Deo., 1913 7 Meredosia,June, 1906 10 Metamora, Apr., 1904 7 Metcalf, Feb , 1906 10 Metropolis, May, 1912 8 Middletown, Nov., 1914 10 Milan, June, 1914 8 Miirord, Mar., 1914 8 Mill Creek, Jan. ,1905 10 Milledgeville, Oct.. 1910 8 Manlius, Oct., 1915 10 Millington, Dec, 1906 10 Mill Shoals, Apr. , 1906 10 MlUstadt, July, 1909. 9 Milmine, Jan., 1912. 10 Mineral, Sept., 1911 10 Minier, Apr., 1904 8 Minonk, Mar., 1904 7 Minooka, Dec, 1911 8 Mitchell, Apr., 1909 10 Modesto, Aug. , 1906 10 Mokena, July, 1909 9 Moline*, 1916 4 Momence, June, 1903 7 Monee, May, 1904 8 Monica, May, 1914 10 Monmouth*, 1916 7 Monroe Center, Feb., 1914 lo Montgomery*, (See Aurora).. 6 Monticello, Mar. , 1910 7 Montrose, May, 1907 10 Morris, July, 1910 7 Morrison, Jiuy, 1904 7 Morrisonville*, 1916 9 Morton, Feb., 1911 9 Mound City, Oct. ,1915. 7 Mounds, Apr., 1913 7 Mt. Auburn, Dec, 1905 10 Mt. Carmel* 1916 7 Mt. Carroll, June, 1908 8 Mt. Morris, June, 1904 9 Mt. Olive*, 1916 7 Mt. Pulaski*, 1916 7 Mt. Sterling, Mar., 1908 7 Mt. Vernon*, 1916 7 Mt. Zion, Nov., 1913 10 Moweaqua, July, 1905 8 Mulberry Grove, June, 1913. .10 Muncie, Jan., 1912 10 Murdook, Apr., 1908 10 Murphysboro*, 1916 : 8 Murray ville, Dec, 1911 9 Nameoki, Apr., 1909 10 Naperville, Apr. , 1910 7 Naples, Oct., 1914 10 Nashville, June, 1907 8 Nauvoo, Mar., 1915 7 Nebo, Sept., 1905 10 Neoga, Sept., 1915 9 Neponset, Mar., 1907 9 Nevada, Feb., 1909 10 Newark, Nov., 1915 9 New Athens, Jan., 1913 7 New Baden, Feb., 1911 8 New Berlin, Apr., 1912 10 Newbem, (See Dow) 10 New Boston, Apr., 1912 10 New Brownfleld, June, 1908.. 10 New Bumside, Apr., 1906 10 New Canton, Oct., 1911 10 New Douglas, July, 1903 10 New Haven, Dec, 1912 10 New Holland*, 1916 9 New Lenox, Sept. ,1909 10 Newman, Jan., 1910 10 New Milford, May, 1911 10 —30 P S N. B. Name of city. Grade. Newport, (See Madison) 8 New Salem, Apr. , 1906 10 Newton, May, 1916 7 New Windsor, June, 1903 9 Niantic*, 1916 9 Nilwood, Sept., 1908 10 Noble, May, 1912 10 Nokomis*, 1916.; g Nora*, Mar., 1903 10 Norris City, Apr., 1906 10 Normal, Mar., 1908 8 North Alton, (See Alton) 10 North Chicago, Nov., 1908.... 7 North Crystal Lake*, (See Crystal Lake) 7 North Henderson, Aug., 1911.10 Norris, (See Canton) 10 Oakford, Sept., 1908. 10 Oakland:, Aug. J911 9 Oaklawn, (See Danville) 7 Oakwood, Dec, 1908 10 Oblong, Sept., 1914 10 Oconee, May, 1907 10 Odell, Nov., 1903 8 Odin, Nov., 1908 9 O'Fallon, Oct., 1909 8 Ogden, June, 1911 9 Oglesby, Sept., 1913 10 Ohio, Apr. . 1907 8 Ohlman, May, 1907 10 Okawville , Deo. ,1908 10 Olive Branch, Jan.) 1905 10 Olmstead, Nov., 1903 10 Olney*, 1916 8 Omaha, Dec, 1905 10 Onarga, May, 1905 7 Oneida, June, 1913 10 Oquawka, May, 1905 9 Orangeville, June, 1905 8 Oregon, Jan., 1909. 8 Orion, Apr., 1912 9 Osco, Jan., 1912 10 Oswego, Oct., 1903 8 Ottawa*, 1916 7 (Reprint, Oct., 1910.) O waneco. Mar. , 1908 10 Opdyke, Mar., 1915 10 Palestine, Oct., 1910 9 Palmer, June, 1906 10 Palmyra, Oct., 1906 10 Pana*,1916 7 Panama, Apr., 1909 10 (Reprnt, Feb., 1914.) Papineau, Oct., 1908 10 Paris*,1916 7 Parnell, Dec, 1908 10 Patoka, Feb., 1909 10 Pawnee, Mar. , 1907 10 Paw Paw, June, 1904 8 Paxton, Nov., 1906 8 Payson, Oct., 1911 10 Pearl, July, 1915 10 Pearl City, Mar., 1904 8 Pecatonica, June, 1904 8 Pekin*,1916 6 Penfield, Oct., 1905 10 Peoria*, 1916 4 Peotone, Nov., 1909 8 Percy, Oct., 1908 9 Peru*,1916 7 (Reprint, Sept., 1910.) Perry, June, 1906 10 Pesotum, July, 1907 10 Petersburg, May, 1912 8 Philo, Feb., 1915 10 Pierson, Oct., 1914 10 Pinokneyville, Sept., 1915 7 Piper aty, July, 1914 8 Pittsburg, May, 1913 10 Pittsfleld, Aug., 1903 7 Pittwood, Oct., 1908 10 Plainfleld, Sept., 1915 S N. B. Name oicity. Grade. PlalnviUe, Oct., 1911 10 Piano, Oct., 1908 7 Pleasant Hill, Jan., 1908 10 Pleasant Plains, Feb., 1906 .. 9 Plymouth, Jan., 1906 9 Pocahontas, Feb., 1911 10 Polo, June, 1904 7 Poutiac*, 1916 8 Pontoosuc, Aug. ,1912 10 Poplar Grove, Apr., 1910 9 Port Byron, Mar. , 1907 10 Potomac, July, 1912 9 Prairie City, June, 1914 10 Prairie du Bocner, Sept., 1908 10 Preemption, Mar., 1903 10 Princeton, Sept., 1912 7 Princevllle, Apr., 1915 8 Prophetstown, Mar., 1914 8 Pulaski, Nov., 1914 10 Putnam, May, 1905 10 Quinoy*, 1915 4 Ramsey, Apr. , 1907 10 Rankin, Nov., 1905 9 Ransom, May, 1907 8 Rantoul, Aug., 1907 7 Rardin, Mar., 1914 10 Raritan, June, 1903 10 Raymond, Feb., 1906 10 Red Bud, Sept. , 1915 8 Reddick, Nov., 1909 9 Redmon, Jan., 1915 10 Beeves, Feb., 1909 10 Reynolds, June, 1915 10 ReynoldsviUe, Nov., 1913 10 Richmond, Feb., 1906 9 RidTO Farm, Nov., 1909 9 Ridgway , Apr. ,1907 10 Rio, Dec, 1911 9 Biverton*,1916 9 Roanoke, June, 1914 8 Roberts, July, 1908 9 Robinson, Nov., 1914 7 Rochelle, May 1908 8 Rochester, Feb., 1908 10 Rockbridge, Mar., 1914 10 Rockefeller, Jan. , 1910 10 (Now known as Area.) Rock Falls, (See Sterling) 7 Rockford*, 1916 4 Rook Island*, 1916 5 Eookport, Jan. ,1913 10 Rockdale, (See Joliet) 8 Rookton, Oct., 1908 8 Roodhouse, Apr., 1906 8 Rose Hill, June, 1913 10 Roselle, May, 1908 9 Roseville, Jan., 1912 8 Roslclare, May, 1913 10 Rossville, Mar., 1914 8 Round Knob, May, 1913 10 Round Lake, Nov., 1913 8 Rowe, Feb., 1909 10 Royalton, Jan. , 1915 10 Rushville, Apr., 1914 7 Rutland, Apr. ,1907 10 Sadorus, Feb., 1912 10 Sailor Springs, Nov., 1908 10 Salem, June, 1913 8 Sandoval, Oct. , 1908 9 Sandwoh, Apr.,1910 7 San Jose*, 1916 8 Saunemin, Feb., 1914 10 Savanna, July, 1904 7 Saybrook, Mar., 1909 10 Scales Moimd, May, 1910 10 Schram City, (See Hlllsboro). 10 Sciota, Sept., 1903 10 Seaton, Dec, 1912 9 Seatonville, Oct., 1908 9 Seoor, Nov,, 1905 8 466 N.B. Name of city. Grade. Seneca, Nov., 1903 9 Serena, Jan., 1912 10 Sesser, June, 1914 10 Seymour, Nov. , 1913 10 Shabbona, Sept., 1906 8 Shannon, Sept., 1908 8 Shawneetown, May, 1905 10 Sbeffleld.'Aug., 1906. 8 ShelbyviUe, Mar., 1914 8 Sheldon, Feb., 1904 7 Sheridan, Dee. ,1912 10 Sherrard, Sept., 1908 8 Shiloh, July, 1909 10 Shipman, Jan. , 1908 10 Shumway, June, 1907 9 Sibley, Nov., 1909 8 Sidell, July, 1905 9 Sidney, Nov., 1907 9 Sieel, Mar., 1909 9 Silvis, Apr., 1910 8 Simpson, Jan., 1912 10 Smithboro, June , 1906 10 Smithfield, May, 1905 10 Smithshire, Nov., 190S 10 Smithton & Douglas, July, 1909.. • 10 Somonauk, Oct., 1903 7 Sorento, Apr., 1904 9 South Belcdt, Dec., 1903 10 South DanViUe, (See Dan- ville) 7 South Wilmington, Jan. , 1910. 9 Sparland, June, 1912 10 Sparta, Aug., 1908 7 Springer, Apr., 1906 10 Springfield*, 1916 6 Spring Valley*, 1916 8 St. Anne, July, 1905 7 St. Augustine, Aug., 1907. 10 St. Charles*, 1916 8 St. David, Mar., 1911 9 St. Elmo, Apr., 1905 7 St. FranoisviUe, June, 1907... 9 St. Jacob, Apr., 1909 9 St. John*, (See Duquoin) 8 St. Joseph, Jan., 1905 10 St. Libory, Sept., 1909 10 Ste. Marie, June, 1913 10 St. Peter, Mar., 1909 10 Standard, June, 1913 9 (Now known as Taft.) Stanford, Apr. , 1912 8 Staunton*, 1916 8 Bteeleville, Mar. , 1909 10 Sterling*, 1916 5 Steward, Mar., 1910 8 Stewardson, June, 1907 10 Stillman Valley, June, 1911.. .10 Stookdale, Apr., 1903 10 Stockton, June, 1915 7 Stonefort, Apr., 1906 10 Stonington*, 1916 7 Strasburg, Jan., 1914 9 Strawn, Apr., 1914 8 Streator*, 1916 6 (Reprint, June, 1911.) Stronghurst, Nov., 1905 9 Sublette, Apr., 1907 8 Sullivan, Feb., 1912 9 Summerfield, Mar., 1909 10 Sumner, Aug., 1907 10 N.B. Name of city. , Grade. Swan Creek, Nov., 1908 10 Sycamore, Dec. , 1908 8 Sugar Grove, Sept., 1915 10 Table Grove, June, 1905 10 Taft, (See Standard) 9 Tallula, Jan., 1912. 10 Tamaroa, June; 1907 10 Tamms, Mar., 1914 10 Tampico, Dee., 1912 8 Taylor Springs, (See Hills- boro) 10 Taylorville*. 1916 7 Tennessee, Apr., 1912 10 Teutopolis, Jiily, 1907 9 ThawviUe, Aug., 1911 9 Thayer*, 1916 9 Thebes, Mar., 1913 10 Thomasboro, June, 1912 9 Thompsonville, Apr., 1907 10 Thomson, Jan., 1905 8 Tilden, Mar., 1912 10 Tilton*, (See Danville) 5 Timewell, Feb., 1915 10 Tiskilwa, Sept., 1913 8 Toledo, Mar., 1910 10 Tolono, Oct., 1913 8 Toluca, Mar., 1904 8 Tonlca, Mar., 1910 9 Torino, Dec, 1912 10 Toulon, May, 1912 7 Towanda, Mar., 1908 10 Tower H 11, Aug., 1905 10 Tremont. June, 1913 8 Trenton, Feb., 1909 7 Troy, Feb., 1910 9 Troy Grove, Aug., 1909 10 Tunnel, Hill, Jan., 1912 10 Tuscola, Feb., 1904. 7 Ullin, Apr., 1911 10 Union, Nov. , 1914 g (McHenry County.) Unity, (See Hodges Park) 10 Upper Alton, May, 1909 8 Urbana*, 1916..... 6 Utica, Dec, 1914 10 Union, Apr., 1914 10 (Clark County.) Valmeyer, Oct. , 1913 10 Vandalia, July, 1913 8 Van Orin, Feb., 1904 10 Varna, Aug., 1907 10 Venice, Jan., 1909 8 Vergennes, May, 1909 10 Verm lion, Jan., 1906 10 Vermilion Grove, June, 1912.. 10 Vermilion Heights*, (See Danville) s Vermont, July, 1905. lo Verona, Sept., 1909 10 Versailles, June, 1906 10 Victoria,_May , 1914 10 Vienna, Feb., 1905 9 Villa Grove, Dec, 1908 10 Villa Ridge, Feb., 1914 10 Viola, Apr., 1909 10 Virden*,1916 8 Virginia, June, 1906 9 Wadsworth , May, 1909 10 N.B Name of city. Grade • Waggoner, May, 1912. 10 Walnut, Dec, 1903 7 Waltonville, May, 1913 10 Wanlock, May, 1903 10 Wapella, Apr., 1911 9 Warren, June, 1910 7 Warrensburg*, 1916 8 Warsaw, Apr., 1909 8 Washburn, Mar., 1911 10 Washington, Apr., 1904 8 Wataga, Apr., 1907. 9 Waterloo, Nov., 1904 7 Waterman, June, 1912. 9 Watseka, July, 1913 8 Wauconda, Mar. i 1914. 9 Waukegan*, 1916 5 Waverly*, 1916 9 Wayne City, May, 1906 10 Waynesville, May, 1912 8 Weldon, Mar., 1914 10 Wellington Nov., 1905 10 Wenona, Mar., 1904 7 West Brooklyn, Mar., 1913. .. 9 West Chicago, June, 1913 7 Westfleld, May, 1914 8 West Frankfort, Mar., 1906. ..10 West Liberty, Jan., 1913 10 West McHenry, (See Mc- Henry), Aug., 1904 8 Weston, Nov., 1910 10 West Point, July, 1905 10 West Salem, Apr., 1906 9 We-stville, Oct., 1910 9 Wetaug, June, 1908 10 Wheaton, June, 1913 8 White Hall, July, 1909 8 White Heath, June, 1913 10 Williamsfield, June, 1905 10 Williamson, Mar., 1913 10 Williamsville, July, 1906 10 WiUisville, Oct., 1908 9 Willow Hill, Nov., 1907 10 W Imington, Sept. , 1915. 7 Winchester, Nov., 1914. 8 Windsor, Apr., 1914 10 W nfleld, Aug., 1912 10 Winnebago, Apr., 1908 10 Winslow, May, 1905 9 Winthrop Harbor, Feb., 1907. 9 Witt, May, 1907 10 Wolf Lake, Feb., 1915 10 Woodhull, Dec, 1905 7 Woodlawn, Jan., 1915 10 Woodlawn, Sept., 1906 8 Wood River, ()ct. ,1913 7 Wood River Heights, (See Wood River) 10 Woodson, Apr., 1906 10 Woodstock, June, 1908 7 Worden, May, 1909 9 Wyanet, July, 1906 9 Wyoming, June, 1914 8 Xenla, Dec, 1908 9 Yale, June, 1913 10 Yates City, Nov., 1913. 10 Yorkvllle, Feb., 1905 8 Youngstown, Apr. , 1903 10 Zelgler, June, 1912 8 Zionaty, Aug., 1908 7 467 GRADING OF COOK COUNTY, ILLINOIS, CITIES AND TOWNS BY THE CHICAGO BOARD OF UNDERWRITERS. Numbered by the National Board on Their Plan. Nameof(dty. Grade. Alpine lOth Argo 9th Arlingtan Heights 9th Barrmgton 8th Bartlett 10th Bellwood 9th Bernlce 10th Berwyn 7th Bluelsland 7th Braeside 10th Broadview. 10th Brookfield 8th Burnham 9th Burnside 6th Burr Oak 10th Chicago 3d Chicago Heights 6th Chicago Ridge 10th Cicero 8th Clyde 8th Congress Park 8tb DesPlaines 9th Dolton 9th Drezel 8th Elk Grove 10th Evauston 4th Evergreen Park. 10th Fairview 10th Feehanville 10th Flossmoor 10th Forest Park. 7th Franklin Park 9th Glencoe 8th Glenview 10th Glenwood 10th Globe Station 10th Goeselville 10th GoU 10th Grant Park 8th Gross Point 8th Name of city. Grade. HsTvey 7th Hawthorne 8th Hazel Crest 10th Highland 10th Hillside 10th Homewood 9th Hodgkins 10th Hubbard Woods 8th Justice Park 10th Kenilworth 9th KolM 10th LaOrange 6th LaGrangePark 8th Lambert 10th Lansing 10th Lemont 9th Leyden 10th Lyons 9th Maine 10th Mannheim 10th Matteson 10th Maywood 7th MefrosePark 8th Midlothian 10th Morton Grove 9th Morton Park 8th Ml. Forest 10th Mt. Greenwood 10th Mt. Hope 10th Mt. Prospect 10th Niles. 10th Nile."Center 9th North Northfleld 10th Norwood Park. «th Oak Forest 10th Oak Glen lOtb Oak Lawn 10th Oak Park 5th Oak Ridge 10th Name of city. Grade. Orchard Place 10th Orland 9th Palatine 9th PalosPark 10th Palos Springs 10th Park Ridge 8th Phoenix 8th-10th Posen 10th Resurrection 10th Riohton 10th Riverdale 9th River Forest 8th River Grove 10th Riverside 8th Riverview 10th Sohaumburg 10th Sharp Comers 10th Shermervllle 10th South Cbicago Heights 9th South Holland 10th Spauldlng 10th Steger 9th Stickney. 10th Summit 9th Sutton 10th Techney 10th Thornton 10th TinleyPark 9th .Warren Park 8th Welcome 10th Western Springs 8th West Hammond 8th West Harvey 8th Wheeling....: 10th Willow Springs 10th Wilmette 7th Winnetka 8th Wireton 10th Worth 10th 468 SPECIAL INDEX TO NAMES AND CLASSES OF INSURED PROPERTY. Note. — See general index p. 477 for all subjects except property names, etc. PAGE. Academies and schools without dormitories 286 Agricultural implement factories and other factories h a v- ing woodworking (principally hard) in conjunction 339 implements 288 implements — sprinklered 288 All classes, total business for 1915 456, 457 classes — blanket policies 454, 455, 458, 460 classes — except blanket policies, miscellaneous and floaters. . .455 classes — except blanket policies, miscellaneous, floaters and unclassified 453, 459 classes — except miscellaneous, floaters and blanket policies. . 457 classes — except miscellaneous, floaters and unclassified 451 classes, farm business — except miscellaneous — that is to say building and contents 446 classes — including blanket poli- cies 455 classes — including blanket poli- cies, miscellaneous and float- ers 454, 458 classes — including blanket poli- cies, miscellaneous, floaters and unclassifled 461 classes — including miscellane- ■ ous 450 classes — including miscellane- ous, floaters and unclassified . 452 miscellaneous classes and float- ers 460 unclassified business 461 Almshouses 418 Aluminum factories 353 Amusement properties 424 Armories 278 Artificial flower factories 354 flowers- retail 314 Artists materials and art stocks.. 289 Art, museums of '. 285 stocks and artists materials. . .283 PAGE. Asphalt 354 Asylums {deaf, dumb, blind, or- phan) 417, 418 insane and inebriate 418 Automobile and carriage sales- rooms 289 factories 347 floaters 442, 443 Awning 410 Axe factories 349 Bag factories, paper 399 Bagging factories 384 factories — sprinklered 385 Bag-making, all kinds except paper 354 Bakeries 355 sprinklered 355 Ball grounds 424 Banks and office — sole or pre- dominant occupancy 316 Bark extract mills 375 in woods 442 BarnS and dwellings — summer or winter only 283 and stables, private (other than farms) 276 and stables (public) 418 Barytes mills 415 Basketware, wooden and willow 325, 326 Bath houses 420 Belting 311 Billiard halls 419 table and casket factories 341 Blacking works 386 Blacksmith shops 420 Blanket policies — all classes '454, 455, 458, 460 policies, all classes, including — grand totals '455 policies, miscellaneous and float- ers, all classes including 454, 458 policies, miscellaneous, floaters and unclassified — all classes including 461 469 Note. — See general index p. 477 for all subjects except property names, etc. TAGE. Bleacheries 356 sprinklered 356, 357 Blueing, mucilage, etc., works... 356 Blind and wooden box factories . . 346 Blinds 294 Boarding and hotel barns 418 houses (all the year round)... 428 houses (summer or winter only) 428 schools 278 Boat building 341 houses 420 Bobbin factories 340 Bone black works 386 Bookbinderies 402 sprinklered 403 Books 290 Boot factories j. . 357 factories — sprinklered ....357, 358 Boots— retail 290 wholesale 291 Bottling works for beers 421 for mineral waters 421 for soft drinks 421 Bowling alleys 419 Box factories, paper 399 Brass foundries 348 Brassware factories 349 Breweries 358, 359 Bric-a-brac and silverware 308 Brick works 401 Bridges 421 Broom factories 359 Brush factories 359 Builders' materials 294 risks .- 422 Buildings in process of construc- tion 422 mercantile, household furniture in 307 Bus barns 418 Butter — retail 302 Cabinet and carpenter shops with- out power 340 Candle works 396 works — sprinklered 397 Canning works for flsh 360, 361 works for fruit and vegetables. 360 Cap factories 366 factories — sprinklered 366, 367 Capitols, state 278 Caps — retail 292 wholesale 292 Carrousels 424 Carpenter and cabinet shops with- out power ■_ 340 shops (power) ■' 345 PAGE. Carpet batting factories 361 factories 415 lining factories 361 Carpets and notions — retail 297 and notions — sprinklered 299 and notions — wholesale 298 Carriage and automobile sales- rooms 289 Casein factories 373, 374 Casket and billiard table fac- tories 341 Celluloid and celluloid goods fac- tories 361 and celluloid goods factories — sprinklered 362 Cement mills 362 Cereal mills — except flour and rice mills 362 mills — except flour and rice mills — sprinklered 363 Chair factories 340 Chandeliers and lamps 301 Chapels 277 Cheese factories 373, 374 retail 302 Chemicals and medicines — sprink- , lered 296 retail 295 wholesale 296 Chemical works — acids .-363 oU kinds — sprinklered 365 chemicals of a known hazard- ous nature 364 electrolytic plants 364 heavy chemicals 363 miscellaneous 365 volatile solvents 364 Chewing gum factories 370 gum factories — sprinklered 370, 371 China and glassware 294 decorating 401 Chinese and Japanese goods — re- tail 297 and Japanese goods — sprink- lered ;..299 and Japanese goods — wholesale. 298 Chocolate factories 370 factories — sprinklered 370, 371 Churches 277 Cider mills 417 Cigarette factories 411 factories — sprinklered 411, 412 Cigar factories 411 factories — sprinklered 411, 412 Cigars — retail 327 Cities and towns of Illinois — grading of on National Board plan 462 470 Note. — See general index p. 477 for all subjects except property names, etc. PAGE. City and town halls 278 Cleaning establishments 365 Clock factories — if no woodwork- ing ".349 factories — if with woodworking. 341 Clocks 308 Clothing and rubber goods, manu- facture of 404 and rubber goods, manufacture of — sprinklered 404, 405 factories 366 factories — sprinklered 366, 367 retail 292 wholesale 292 Club houses, country 423 houses (city) 422 Coal breakers — anthracite 367 tipples and top works — ^bitu- minous 368 trestles 423 yards 428 Coffee mills 369 Collar factories 369 factories — sprinklered 366, 367 Colleges 278 Condensed milk 373, 374 Confectionery 293 factories 370 factories — sprinklered 370, 371 Convents 278 Cooper factories 349 shops 340 Cordage factories 384 factories — sprinklered 385 Cordwood 442 Cork works (vegetable) 371 Corset factories 369 factories — sprinklered 366, 367 Corticene factories 394 factories — sprinklered 394 Corundum factories 371 Costumer 292 Cotton-^all classes not otherwise provided for — including float- ers 443 compresses with warehouses and platforms if communicat- ing therewith 424 gins 372 mills {thread and fabric) 372 mills (thread and fabric) — sprinklered 372, 373 yards and platforms when not communicating with com- press 424 Counter factories 357 factories — sprinklered 357, 358 Court houses 278 Crematories ' 374 PAGE. Creameries 373, 374 Creosote works 374 Crockery 294 Crucible works 401 Crude glycerine works 396 glycerine works — sprinklered.. .397 Cuff factories 369 factories — sprinklered 366, 367 Curring shops 409 Curtain factories, lace 414 factories, lace — sprinklered 414 Cutlery factories 349 retail 304 Dental factories 350 Department stores — sprinklered. .325 Distilleries 375 Door factories 346 Doors 294 Dressing and forming mills 378 and forming mills — sprinklered. 379 Dressmaking 292 Dry docks 341 goods— retail 297 goods— sprinklered 299 goods — ^wholesale 298 houses for lumber 346 Drug mills 375 mills — sprinklered 375 Drugs — ^retail 295 sprinklered 296 wholesale 296 Dwellings and barns— summer or winter only .- 283 brick, combustible roof 279 brick, noncombustible roof 280 frame, combustible roof 281 frame, noncombustible roof 282 occupied for farming purposes. 444 palatial — of $50,000 value or more 283 Dyewood mills 375 mills — sprinklered 375 Dye works , 356 works — sprinklered 356,357 Eggs — retail 302 Electric and' gas fixtures 301 light plants 375 Electrolytic plants 364 Electroplating 353 Elevators, grain, country 382 grain, terminal 380, 381 grain, terminal — sprinklered ... 381 Embroidery factories 414 factories — sprinklered 414 Emery wheel factories 371 Envelope factories 399 Excelsior, factories 347 Exhibition buildings 424 471 NoTE.---See general index p. 477 for all subjects except property names, etc. Express barns 418 Extract works !!!!!! 391 Factories — see name of article, etc., manufactured. Fair grounds 424 Farm business 444 barns and other outbuildings occupied for farming pur- poses 445, 446 Feather — retail • 314 renovating factories 390 working 354 Feed 306 mills 383, 384 Felting factories 415 Ferry boats : 437 houses 328 Fertilizer factories 375 Filtration plants 441 Fire department houses 278 Fish, canning works for 360, 361 retail 302 Flax mills 372 mills^sprinklered 372, 373 Floaters 442 all classes including blanket, miscellaneous and 454, 458 all miscellaneous classes and.. 460 and miscellaneous 452 and miscellaneous classes. 454, 458 and unclassified — all classes, in- cluding blanket, miscellan- eous 461 and unclassified — all classes, in- cluding miscellaneous 452 Flour 306 mills 377 mills — sprinklered 377 Flower factories, artificial 354 Flowers, artificial — retail 314 Forming and dressing mills 378 and dressing mills — sprink- lered 379 Foundries, iron, brass, type work, stove and furnace 348 Foundry facing works. 378 Fruit and produce — retail 302 and vegetables, canning and pre- serving works for 360 evaporators 425 packing houses (not canning). 425 Furs and men's furnishings — re- tail .• 292 and men's furnishings — whole- sale 292 cutting mills 378 cutting mills — sprinklered 379 hat mills 378 hat mills — sprinklered 379 PAGE. Furnace foundries 348 Furniture factories 341 household, in mercantile build- ings 307 stores 300 stores — sprinklered 300 Garages — ^private 284 (public) 426 (public) — sprinklered 426 Gas and electric fixtures 301 fitting shops 435 fixture factories 353 works 427 Glass 317 Glassware and china 294 Glass works 379 Glove factories 388 Glucose factories 380 Glue works 396 works — sprinklered 397 Grading of Illinois cities and towns on the National Board plan 462 Grain 306 and hay in stacks in field; 449 elevators — country 382 elevators — terminal 380,381 elevators — terminal — sprink- lered 381 growing in fields 449 warehouses — country 382 warehouses, terminal 380, 381 warehouses, terminal — sprink- lered 381 Graphite works 383 Graphophone factories 341 Greenhouses (commercial) 427 Grist mills 383, 384 Groceries — retail 302 wholesale 303 wholesale only — sprinklered 303 Gymnasiums 422 Gypsum mills 415 Hardware, etc. — wholesale 305 factories for manufacturing cut- lery, cooper or brassware, axes, tools — also clock fac- tories if no woodworking. .. .349 retail 304 sprinklered 306 Harness and trunks — wholesale. .309 factories 388 retail 308 Hay ; 306 and grain in stacks in field 449 presses and barns 427 Hats— retail 292 wholesale 292 472 Note. — See general index p. 477 for all subjects except property names, etc. PAGE. Heel factories 357 factories — sprinklered 357,358 Hemp mills '. 384 mills — sprinklered 385 Hides — wholesale 309 HoUowware factories 353 Homes for aged 417 Hop kilns 425 Horn factories 385 Hosiery, cotton — when full pro- cess 372. cotton — when full process — sprinklered 372, 373 Hospitals 284 Hotel and boarding barns 418 Hotels (all the year around) 428 (summer or winter only) 428 House furnishings 325 Household furniture in mercantile buildings 307 Hub factories 345 Ice cream parlors 293 factories 386 storage houses 429 Illinois cities and towns — grading of on National Board plan. . .462 Implements, agricultural 288 Incinerating plants 374 Ink works (excluding printing ink works) 356 Iron and steel bars and piping — retail 304 bedstead factories 353 foundries 348 toy factories 353 Ironworking with woodworking and painting — sprinklered . . . 343 Ivory factories 385 Jails '436 Japanese and Chinese goods — re- tail 297 and Chinese goods — sprink- lered • 299 and Chinese goods — wholesale. .298 Japanneries 353 Jewelry 308 factories 350 Junk stores 436 Jute mills 384 mills — sprinklered 385 Kalsomine mills 415 Kindling wood mills 347 Knitting factories 415 mills, full process — sprinklered. 416 FAOE. Lace curtain factories 414 curtain factories — sprinklered. 414 Ladder factories 340 Lamps and chandeliers 301 factories 353 works 386 Lard 396 sprinklered 397 Lath factories 347 Laundries (hand or power) 387 Lead pipe works 388 Leather board mills 39J9 board mills — sprinklered 400 goods factories (except boot and shoe) . . .- 388 goods factories (except boot and shoe) — sprinklered 389 goods (other than boots and shoes) — retail 308 making generally, without ja- panning 409 making of all kinds — sprink- lered 409 trunk factories 388 wholesale 309 Libraries — ^public 285 Licorice mills 375 mills — sprinklered 375 Lime kilns 415 Linen mills 372 mills — sprinklered 372, 373 Linoleum factories 394 factories — sprinklered 394 Liquors — ^wholesale 310 Lithographers 402 sprinklered 403 Livery barns 418 Live stock on farms in or out of buildings 447, 448 Locksmith shops 435 Lodge and society rooms (Ma- sonic, Odd Fellows, etc.) 310 Logs 442 Looking glass and picture frame factories 340 Lumber, dry houses for 346 in woods 442 yards — retail 430, 431 yards — wholesale and mill. 429, 430 Macaroni factories 355 factories — sprinklered 355 Machinery '. 311 Machine shops (with foundries connected) 351 shops without foundries 352 Malt houses 390 473 Note. — See general index p. 477 for all subjects except property names, etc. PAGE. Manufacturing establishments op- erated with machinery, not otherwise classified, miscel- laneous 392 establishments operated with machinery, not otherwise classified, miscellaneous — sprinklered 392 Marble yards with power and mills 432 Marine dredges 437 railways 341 Match factories 342 Matting factories 407 Mattress factories 390 Meat — retail • 302 Medicine factories 391 Medicines and chemicals — sprink- lered 296 retail 295 wholesale 296 Men's furnishings and furs — re- tail 292 furnishings and furs — whole- sale 292 Mercantile buildings, household furniture in 307 miscellaneous 312 Merchant, tailor 292 Metal workers, miscellaneous, not otherwise specified 352 workers — sprinklered 349, 350 Millinery, etc. — wholesale 315 retail 314 Mills, see names of articles or sub- stances ground or treated. Mineral in tanks and sumps 396 refineries 396 Mining buildings — anthracite 367 dredges 391- risks (other than coal) includ- ing mining dredges 391 Miscellaneous classes (farm risks) 449, 450 (manufacturing establishments operated with machinery, not otherwise classified) 392 (manufacturing establishments operated with machinery, not otherwise classified) — sprink- lered 392 nonhazardous — sprinklered ...287 nonmanufacturing specials not otherwise classified 432 nonmanufacturing specials not otherwise classified — sprink- lered 433 sprinklered 343 Morocco works 409 PAGE. Motion picture shows 434 Moulding factories 345 Mucilage, blueing 356 Museums of art or natural his- tory 285 Music 316 Musical instruments 316 Mustard mills 369 Natural history, museums of 285 Nonmanufacturing specials not otherwise classified — miscel- laneous 432 specials not otherwise classified — miscellaneous — sprinklered . 433 Notions and carpets — retail 297 and carpets — sprinklered 298 and carpets — wholesale 299 Office and banks — sole or predom- inant occupancy 316 Oleomargarine 396 sprinklered 397 Oil cloth factories 394 cloth factories — sprinklered . . . 394 clothing factories 394 clothing factories — sprinklered . 394 color works 398 color works — sprinklered 398 derricks 396 factories — vegetable — sprink- lered 395 mills 417 vegetable in tanks 395 works (fish) 395 works (mineral) refineries, oil derricks, pipe lines 396 works (vegetable) 394 Oils 317 Opera houses 440 houses — sprinklered 440 Optical and scientific goods 316 Organ factories 341 Outbuildings and farm barns oc- cupied for farming pur- poses 445, 446 Overall factories 366 factories— sprinklered 366, 367 Packing houses 396 houses — sprinklered 397 Pail factories 340 Painting and woodworking with ironworking — sprink- lered 343, 344 Paint shops .^. 434 works 398 works — sprinklered 398 Paints 317 474 Note. — See general index p. 477 for all subjects except property names, etc. PAGE. Palatial dwellings — of |50,000 value or more 283 Paper bag factories 399 box factories 399 (excluding stationery) 318 factories, wall 412 hangings 317 mills 399 mills — sprinklered 400 Paste 356 Pawnbrokers' stocks 318 Peanut factories 400 Pearl goods factories 385 Pencil works 383 Penitentiaries 436 Perfumery works 391 Pharmaceutical works 391 Phosphate factories 376 Photographers 435 supplies 316 Piano factories 341 Picture frame and looking glass factories 340 and picture galleries 289 Pillow factories 390 Piping and iron and steel bars — retail 304 Planing mills factories 346 Plaster mills 415 works 401 Plumbing shops 435 Pocketbook factories 388 Polish, stove, works 386 Poor farms 418 Powdered milk 373, 374 Power plants 375 Pottery works 401 Preserving works for fruit and vegetables 360 Print works 356 works— sprinklered 356,357 Printing establishments 402 establishments — sprinklered . . .403 ink works 398 Prisons 436 Produce and fruit — retail 302 Pulp mills 399 mills — sprinklered 400 Pumping stations 441 Race tracks 424 Rag stores 436 Rattan factories 341 Rectifying works (steam) 375 Reform schools 436 Regalia 292 Rendering 396 sprinklered 397 Restaurants 319 PAGE. Rice mills 403 mills — sprinklered 404 Rigging and sail lofts 410 Rinks 424 Rolling mills 348 Roofing material works 354 Rowing clubs 420 Rubber goods 320 goods and clothing, manufac- ture of 404 goods and clothing, manufac- ture of-^sprinklered .... 404, 405 mills Including manufacture of rubber goods and clothing. . .404 mills including manufacture of rubber goods and clothing — sprinklered 404, 405 reclaiming^-sprinklered ..404,405 Saddlery factories 388 Sail and rigging lofts 410 Sale barns 418 Saloons (liquor) 321 Salt works 405 Sand-paper factories 371 Sanltoriums 418 Sash 294 factories 346 Saw mills 347 Schools and academies without dormitories 286 boarding 278 School supplies 290 Scientific and optical goods 316 and surgical instrument fac- tories 350 Seeds 306 Shade cloth factories 394 cloth factories — sprinklered 394 Sheet lead works 388 Shingle factories 347 Ship chandlery 321 yards 341 Shipping in port or laid up 437 Shirt factories 369 factories— sprinklered 366, 367 Shoddy mills 413 mills — sprinklered 413 Shoe factories 357 factories — sprinklered 357,358 Shoes — retail 290 wholesale 291 Shops, cooper 340 machine, without foundries ...352 machine (with foundries con- nected) 351 Silk mills 405 mills — sprinklered 406 Silver factories 353 475 Note. — See general index p. 477 for all subjects except property names, etc. PAQE. Silverware and bric-a-brac 308 Slaughtering 396 Slaughtering — sprinklered 397 Slipper factories 357 factories — sprinklered .....357, 358 Smokers' articles — ^retail 327 Snuff factories 411 factories — sprinklered 411, 412 Soap factories 407 stone factories 406 Society and lodge rooms (Ma- sonic, Odd Fellows, etc.) 310 Spice mills 369 Sporting goods factories 388 Spoke and spool factories 345 Stables and barns (public).' 418 and barns, private (other than farms) 276 Stamping works 353 Starch factories 380 State Capitols 278 Stationery 290 Stave .factories 347 Steam railway risks (excluding merchandise for other parties in freight houses) 436 Steamers 437 Steel and iron bars and piping — retail 304 Stock yards 438 Stone crushers 438 yards with power and mills 432 Stores — country (remote or cross road) 322 department 324 furniture 300 furniture — sprinklered 300 general (village or city) 323 Stove foundries 348 Stove polish works 386 Stoves 325 Straw board mills 399 board mills — sprinklered 400 goods factories 407 Street railway properties, includ- ing storage and operating houses 439 railway properties — sprink- lered 439 Sugar houses 408 refineries 408 Surgical and scientific instrument factories 350 instruments — retail 304 Tableware factories 353 Tailor, merchant 292 Talc factories *06 Tank factories 340 PAOi;. Tanneries 408, 409 sprinklered 409 with japanning or enameling. . .410 Tar 354 Telephone exchanges 326 Tent 410 Theatres 440 sprinklered 440 Tile works 401 Tin factories 353 shops 435 Tinware 325 Tobacco barns 441 etc. — wholesale 327, 328 factories 411 factories — sprinklered 411, 412 prizeries and rehandling houses. 412 prizeries and rehandling houses — sprinklered 411, 412 retail 327 stemmeries 412 stemmeries — sprinklered . . 411, 412 Tool factories 349 Tortoise goods factories 385 Town and city halls 278 Towns and cities of Illinois — grad- ing of on National Board plan . 462 Toy, wooden factories 340 Traction properties, including storage and operating houses. 439 properties — sprinklered 439 Trunks and harness — wholesale. .309 Trunks — retail 308 Tub factories 340 Tugs 437 Turning factories 345 Turpentine refineries 398 refineries — sprinklered 398 Type work and stove foundries . . . 348 Unclassified, etc 443, 452 and floaters — all classes — ^in- cluding miscellaneous 452 all classes including blanket, miscellaneous, floaters and... 461 Undertakers' establishments 300 Universities 278 Varnish works 398 works — sprinklered 398 Vegetables and fruit, canning and preserving works for 360 Veneer and kindling wood mills.. 347 Vessels 437 Vinegar mills 417 Waist factories 369 factories — sprinklered 366, 367 Wall paper factories 412 476 Note. — See general index p. 477 for all subjects except property names, etc. PAGE. "Warehouses — acid and chemical. .328 cold storage 329 cotton (no compressing) . ; 329 for storage of cotton 330 for storage of hemp, jute and other vegetable fibres except cotton — sprinklered 334 for storage of tobacco— sprink- lered 337 grain, country 382 grain, terminal 380, 381 grain in sacks 330 grain, terminal — sprinklered. . .381 general storage (not specifically classed) 331 glass 333 hay, straw — broom corn 333 hemp, jute — other vegetable fibres not specifically classed. 334 household furniture 335 naval stores — in storehouse or yard 335 not specifically classified — sprinklered 332 oil 336 rice 336 tobacco 336 whiskey 338 wool 338 Waste and shoddy mills 413 and shoddy mills — sprinklered . 413 mills 413 mills — sprinklered 413 Water works 441 Watch factories 350 Watches 308 Weaving mills (of cotton, wool or elastic goods) 414 mills (of cotton, wool or elas- tic goods) — sprinklered 414 Wharf risks 328 Wheel factories 345 Whip factories 388 White goods factories 369 goods factories — sprink- lered 366, 367 lead works 398 lead works — sprinklered 398 PAGE. Whiting factories 415 Willow, wooden and basketware.325 Wineries 415 Wines — wholesale 310 Wood preserving works 374 Woodworking in rough — sprink- lered 339 (principally hard) in conjunc- tion, factories having, and agricultural implement fac- tories 339 with Ironworking and painting — sprinklered 343 with finishing — s p r i n k- lered 344, 345 Woodworkers — miscellaneous — not otherwise provided for... 342 Wood yards 423 Wooden box and blind factories . . 346 toy and other woodenware fac- tories 340 trunk factories 341 willow and basketware 325 Woodenware and wooden toy fac- tories 340 Wool hat factories 415 Wool pulling 417 scouring 417 Woolen and worsted mills, full process — sprinklered 416 mills (full process — all wool or mixed stocks) 415 Woolens — retail 297 wholesale 298 sprinklered 299 Worsted and woolen mills, full process — sprinklered 416 factories 415 Yacht clubs 420 Yachts 437 Yeast factories 417 Y. M. C. A. club houses 422 Y. W. C. A. club houses 422 477 GENERAL INDEX. Note. — See special index p. 468 for names and classes of insured property. PAGE. Ability, native, not confined to one class of society 20 Accident and health insurance, life insurance principles should be ap- plied to 61 insurance 13 Accidents and sickness, methods of relieving 60 industrial statistics of in the United States 87 Industrial, workmen's compensation law for 59 Actuarial Committee of National Convention of Insurance Commissioners, report of on actuarial bureau of National Board of Fire Underwriters . . 154 Addresses, for full list see table of contents 5 Administration of Illinois insurance department 221 Advance of civilization, conditions of 20 "Agencies and annexes, underwriters" 138 Agent, life insurance, duties to customer 67 life insurance, how graded by the public 65 life insurance, legal rights and duties of 66 life insurance of the future 64 qualification of good life insurance 70 Agents and fire insurance companies 192 qualification law, life insurance 67 qualification requirements '. . . .209 Agricultural cooperation, theory of 37 cooperative enterprises, causes of failure 38 Altruism of Insurance 11 Altruistic utilitarianism of insurance 7 American fire insurance, history 13 Amounts paid for insurance 13 Ancient times, fire insurance in 164 "Annexes and agencies, underwriters" 138 "underwriters," litigation concerning 185 Annuities, old age ." 93, 128 Arson trust in New York City 191 Assessment associations, defects and failure of 45 insurance, effect of increase of average age of members 46 insurance, legislative recommendations concerning 45 insurance, object of 50 insurance, origin of defects of 46 Assessments, effect of increasing in mutual life insurance 48 Austria-Hungary, history of fire insurance in 165 Automatic sprinklers and conflagrations 147 Banking, expense of compared with insurance 16 profits of fire insurance companies 205 Basis tables and Dean Schedule 173 Belgium, great development of cooperation in 39 Benefits of institution of insurance 69, 216 of social features in fraternal societies 29 of unemployment insurance 108 of universal insurance 19 of insurance so great that extortionate expense is endured 17 478 Note. — See special index p. 468 for names and classes of insured property. PAGE. Beneficial institution of insurance abused and perverted 15 Beneficiaries of industrial system, etc 34 of life insurance often lose money paid them 67 Blanket policies 266 Blauvelt, Albert, on prevention of conflagrations 148 Boyhood on farm 36 Brandgullden 40 Bureau for consolidating fraternals 27 Burning ratio .' 259 Cancellation of fire insurance policies 209 Casualty insurance 230 Charity, disadvantages of indiscriminate 18, 109 should not be permanently relied on 56 Chicago Board of Underwriters - 262 Board of Underwriters, quo warranto suit against 224 fire insurance rates in 262 fire rates in, compared with other cities 171 reduction of fire insurance premium rates in 226 Cities, list of grades of, Illinois 462 protecting congested districts in 143 Civilization, origin of 10 unfavorable results of modern 15 welfare insurance preservative of 97 definition and benefits 14 Classification of fire insurance risks 180 of fire risks and losses, special classification index 468 report of fire insurance business in Illinois, 1915 259 reports of Illinois fire insurance business 224 Climate of Illinois. 31 Coal deposits of Illinois 32 Coinsurance 210 Cold, climate relation to civilization 10 Combine, coercion of states by insurance 183 fire insurance, suit against in Illinois 223 National Board of Plre Underwriters as a 132 or "agreement" in joint stock company health insurance 114 Combines in fire insurance 161, 169 Commercial crises, unemployment insurance for mitigating 109 Commercialism in fraternal insurance 25, 26 Commodities, supplied by modem industrial system and commerce 14 Communists, false theories of 96 Compensation, workmen's, and labor conditions 51 Compulsion necessary in welfare insurance 92, 107, 110 not objectionable under proper conditions 94, 111, 130 Conflagration, definition and prevention of 144, 145 hazard 195 hazard, immunity claimed by combine on account of 143 Conflagrations, protecting congested districts in cities against 143 Congested districts and "independent tower" fire escapes 149 districts in American cities, areas of 143 Conditions under which assessments in mutual life companies would be uniform 46, 47 Conservation and human welfare 51 of natural resources 74 vital .'."."; "135 Consolidation or amalgamation of fraternals 27 Constitutionality of national welfare insurance ] !l25 of state Are insurance 196 in Note.— See special index p. 468 for names and classes of insured property. PAGE. Cook County, fire insurance monopoly of Chicago Board of Underwriters. .224 Cooperation and civilization 14 benefits of to masses 34 defined 3Y future of in America '.'..'.'..'.'......'.'.'. 39 great development in Denmark 38 great development in Belgium 39 in Europe ...'.....'...'.'.'..'. 38 productive and distributive 37 rural credits by '...'...'..'.'. 43 Cooperative employment bureaus 56 movement, history of in the United States 37 Corporation insurance an economic loss 17 Credit organizations of Europe 43 Dean Schedule and fire insarance rates 172 Death rate, approximately uniform possible in mutual Insurance societies 47 Deaths, premature, statistics of in the United States 89 Defects of assessment associations 45, 46 fraternal insurance 25 Definition of insurance 60 Denmark, great development of cooperation in 38 history of fire Insurance In 165 Dependents, ways and methods of providing for 24 Distribution and production, problems of 81 of risks - 194 Distributive cooperation 37 Economic freedom, continual battle for 44 functions of life Insurance 80 opportunities equalized by insurance. 18 wrong of extortionate premium health Insurance rate 117 Education and Insurance 74 in fire prevention 212 of public to necessity of insurance. 82 Educational system of Illinois 32 Ekern, Herman L., and prevention of conflagrations 148 Employers liability insurance companies lose opportunity 59 Employment agencies, necessity for national 105 cooperative bureaus 56 England, history of fire insurance in ■. 168 European labor conditions 55 war and spirit of fraternallsm 29 Europe, cooperation in 38 credit organizations of 43 fire insurance premium rates in 182 Evans, president. Continental Fire Insurance Company, likes big fires... 192 Exemptions from compulsory welfare insurance 93 Expansion of Insurance 13 Expense of conducting insurance compared with banking 16 Expensive methods of corporation insurance an economic loss to nation, but Individual benefited 17 "Experience" in fire insurance 259, 261 makes trustworthy estimates of future losses possible 19 of Illinois under workmen's compensation law 54 of United States in shortening hours of labor 55 only equitable basis for flre insurance rates 175 480 Note. — See special index p. 468 for names and classes of insured property. PAGE. "Experience" — Concluded. position of fire insurance companies in relation to 179 statistics of fire insurance 152 Expert advice on vital conservation 136 Family as an example of cooperation 37 groups, units of nation 65 law for protection for whole 251 Farmer, visions aroused by the word 36 Farmers and cooperation 36 grain companies 36 organizations .'. 37 Farms, want and distress not severely felt by dwellers on 23 Fertile soil of Illinois 32 Fiduciary relationship of officials of fraternals 26 Fire danger, protecting congested districts in cities against 143 escapes, independent tower 149 Fire insurance and arson trust in New York 191 and "underwriters annexes and agencies" 138 burning ratio 259 business in Illinois, 1915 259 business, no injustice by State taking over 196 business, standardization 196 by State 190 classification reports in Illinois 224 combine 261 combine, effects of 110 combine, suit against in Illinois 223 combines begin in 169 companies, tactics in dealing with Illinois department 184 companies, their position as to "experience" 179 compulsory because necessary for credit 163 conditions and rates in Illinois, summary of report on 217 excessive expense and profits in 110 "experience" and statistics in 152, 259, 261 explanation of statistical tables, loss ratios, etc 263 history of 163 history of in Illinois 169 investigatiop in Illinois : 223 law, proposed 237 magnitude and necessity of 162 monopoly and combines in 130 necessity for State 42 origin of 12 premium rates '. . .155,' 171 premium rates, how fixed 259, 260,' 261 premium rates, reduction of in Chicago '. . . . '.226 premium rates should be proportionate to losses 259 premiums a tax '..'... .170 previous classification statistics worthless '.'.'.'.!.'.! ^262 rates in Chicago .'.".... 262 rates in Europe !!!!..!! 182 rates in Illinois admitted to be excessive .177 rates in Illinois compared with other states !l73 rates only equitable basis of, is "experience" !..!.!] 175 rates, prerequisites for regulation of '..'.'.. 201 rates, reduction of In Illinois [ [[ llgl rates should' be controlled by law !!]!!! 200 rates, too high and too low both wrong '.'..'.'. .267 481 Note. — See special index p. 468 for names and classes of insured property. PAGE. Fire Insurance — Concluded. reform necessary 218 risk classes with high loss ratios in Illinois, list 272 risk classes with low loss ratios in Illinois, list 269 statistics, complete, refused by the National Board of Fire Under- writers 256 statistics, effect of number of risks 264 statistics, Illinois law concerning only perfunctorily enforced 262 statistics, necessity for 15& why losses cannot be as accurately forecasted as in life insurance 260 Fire losses, amount of caused by incendiarism 193 losses in Illinois according to kind of property see special index of by risk classes '468 loss, reduction of, not desired by insurance companies 158, 183, 192 prevention, education in, etc 212 Fireproof buildings alone do not prevent conflagration 144 Foreign reinsurance and "net lines" 209 Forethought and progress 10 Fraternal Congress, duty of with relation to standardization 26 insurance 23 insurance, average amount of policies 24 insurance, defects of and remedies 25, 26 insurance, legislative recommendations concerning 232 organizations manifest the principle of love 35 societies which do not afBliate with Fraternal Congress 28 spirit eternal, form of organization transitory 22, 28 Fraternalism, duties of 25 how effectuated 22 politics In and commercialization of 26 Freedom, relation of Washington, Lincoln and Wilson to 35 Future, veil before cannot be raised 64 Genei'al insurance against sickness and accidents coming 63 Genius and talent permitted development by insurance 20 Germany, fire insurance premium rates in 182 history of fire insurance in 165 Ghent system of unemployment insurance 107 Government, national, proper body to carry on welfare insurance 83 Grades of cities in Illinois, list of 462 Grange ' 37 Greatest need of wage earner 56 Guilds *0 Hazard, conflagration 195 insurance 208 Health and accident conference, August 18, 1915 58 insurance, advantages and disadvantages of joint stock company 114 insurance, beginning of joint stock company in United States 113, 114 insurance, combine or agreement in joint stock companies 114 insurance, economic wrong of extortionate rates in 117 insurance, joint stock company on industrial plan 114 insurance loss ratio in United States 116 insurance, option should be allowed in compulsory 118 insurance, plan for conducting without expense .117 History of cooperative movement in the United States 37 of flre insurance -163 of flre insurance in Illinois ,. ,. 41 of insurance in general ,12 ef mutual insurance in the United States ,. , 40 —31 P S 482 Note. — See special index p. 468 for names and classes of insured property. PAGE. Hot-blast action in conflagrations and explanation 145 Human life, average span of calculable 45 Human reason and human welfare 8 Hunger only motive which will cause some men to work 109 Igdrasill, mythological ash tree of Scandinavia 64 Illinois and Civil War and Lincoln 33 climate of -. 31 education, press and manufacturing in 220 educational system of 32 enactment of workmen's compensation in 53 fertile soil and coal deposits of 32 fire insurance "experience" of 175 fire loss ratios in 176 history of fire insurance in 41, 169 insurance business 220 insurance department receipts 220 mutual insurance successful in 41 one hundredth anniversary •. 31 original make-up of population 32 prosperity of 33 reasons for rapid growth of 31 response to toast on, at banquet 31 special fire, life and casualty insurance Investigations in 223 things to be remembered in connection with greatness of 35 Improvidence not permissible subject for insurance 91 of workingmen 56 Incendiarism and fire losses 193 Indebtedness of American farmers and farm credits 43 Independent tower fire escapes 149 Index, special, of classes of property or risks and business in each 468 Individual benefited by insurance, but Is an economic loss to community. . 17 Individualism and its anti-social effects 59 of American farmer 38 Industrial accident statistics in United States 87 and commercial system, unfavorable results of modern 15 and commercial system of present age forces people away from land . . 23 conditions, disturbed by strikes and lock-outs 55 crises mitigated by unemployment insurance 109 health and accident insurance • 228 health and accident insurance, loss ratio 116 insurance 84 life insurance, special investigation of 227 "revolution" and subsequent development, effect of 36, 89, 99 system, supplies, commodities, etc 14 . system, ultimate tendency of 33 Industry, effects of specialization in 19 kills thirty or forty thousand people each year 51 Insolvency of fraterhals, menace of 27 Insurance a beneficial institution but abused and perverted 15 accident 13 against unemployment 106 agents and cost of insurance protection 49 altruism and utilitarianism of 7, 11 amount consumed by expenses 17 and education 74 and monopolies therein 16 as a method of relieving suffering 91 beneficial to individual but economic loss to nation at large 17 483 Note.— See special, index p. 468 for names and classes of insured property. PAGE. Insurance — Continued. benefits of 69, 216 business, importance and growth of 219 business in Illinois 220 by corporations an economic loss 17 casualty 230 characterization of 72 companies deceptive calculation of surplus and profit percentage 207 companies do not desire reduction of fire loss 158 companies do not favor fire prevention '. . . . 183 companies, fire, banking profits of 205 companies, fire, tactics of in dealing with Illinois department .184 companies, regulation of promotion schemes, stock sales, etc 229 companies, unauthorized , 228 company profits from illegitimate stock transactions 206 compulsory welfare, not objectionable under proper conditions 130 cooperative In nature 40 definition of 40, 60, 73 department, administration of in Illinois 221 earliest forms of purely mutual 40 effects of universal 20 equalizes economic opportunity 18 expansion of in modern times 13 fire, classification reports of business in Illinois 224, 257 fire companies, profits of 203 fire law proposed 237 fire, monopoly in 130 fire, monopoly in not necessary for safety of companies 213 fire rates, control of, constitutional 201 fraud by early fire insurance companies 15 fundamental basis of 90 funds should not be wasted on vicious and improvident 91 further social progress depends on 20 happier world under universal 21 hazard 208 health, by joint stock companies 113 health, comparison with fire 117 history of 12 industrial 84 industrial health and accident 228 industrial life specially investigated 227 industrial, loss ratio in 116 interests, attitude toward automatic sprinklers 149 Interests, object to state unemployment insurance Ill iavestigation of fire in Illinois 223 is a tax ' 129 is cooperative foresight 10 kinds of for providing against misfortune 24 life 13 life, by "Wisconsin state fund 124 life, principles of should be applied to accident and health 61 maternity 57 mercenary perversion of 199 mutual 36 necessity for 14, 23 necessity for State fire 42 necessity of standardization in 49 principles of understood by comparatively few 10 484 Note. — See special index p- 468 for names and classes of insured property. PAGE. Insurance — Concluded. reasons why present means and systems are inadequate 91 regulation of by law 79 secretary of, needed in President's cabinet 131 should become universal 19 State 17, 72 systems of described 40 theory of ; 11, 90 unemployment, address on 98 universal and benefits of 17, 19, 21, 74, 81, 91 welfare, compulsion necessary 92 welfare, definition of, etc 85, 226 welfare, should be carried on by National Government 83 welfare, permits development of talent and genius 20 welfare (social) , address on 83 workingmen's .' 84 Insured property value should be stated in detail 208 Involuntary unemployment 100 Isolation of farmers, effects of 38 Joint stock company health insurance 113 stock company health insurance, advantages and disadvantages of 114 Journals, insurance fight reform : 186 Kentucky, coercion of by fire insurance combine 183 Kind of life insurance salesman who appeals to me 69 Labor conditions in Europe 55 Labor conditions and workmen's compensation 51 Land, people forced from by industrial and commercial systems 23 Law, knowledge from practice of 36 Legislative recommendations to Fiftieth General Assembly, 1917 session.. '. 219, 230 Life assurance education league, address before 80 insurance 13 insurance agent, duties to customer 67 insurance agent, how graded 65 insurance agent, legal rights and duties of 66 insurance agent of the future 64 insurance agent, qualification of good ., 70 insurance beneficiaries often lose money paid them 67 insurance by Wisconsin state fund 124 insurance, economic function of 80 insurance, generally reliable 24 insurance, necessity of reserve in mutual life 48 insurance, ordinary, average amount of policies 24 insurance, rebating in 67 insurance salesman, kind who appeals to me 69 Limited accident and health policies condemned 61 Lincoln and Illinois 33 Lloyd George Act in Britain 55 Lloyds system of marine and other insurance 12 Loss ratio in health insurance in United States 116 ratio in Illinois fire experience 1 76 ratios in fire insurance, classes with high in Illinois 272 ratios in fire insurance, classes with low in Illinois 269 ratios in fire insurance explained 263, 265 Losses by fire in Illinois, special classification index .' .468 ' estimates of future in insurance 260 485 Note. — See special index p. 468 for names and classes of insured property. PAGE. Maladjustment in subordinate existence 69 Mankind destroyed by forces of nature 7 Manufacturing in Illinois 32 Marine insurance 12 Masses, benefits of cooperation to 34 welfare of higher than ever before 15 Maternity insurance 57 Members of fraternals, ofiBclals' relations to 28 Milligan, vice president of Phoenix, and fire prevention. 192 Misfortune, kinds of insurance for providing against 24 modern methods of relieving 9 Misfortunes of modern industry escapable only by return to barbarism.. 96 Missouri, coercion of by fire insurance combine ; 183 Modern industrial system, effect of 9 times, is insurance needed in 14 Monopolistic extortion and insurance .' ^ . 16, 130 Monopoly 215 in fire insurance is not necessary to solvency of companies 213 will cause assumption by State of insurance functions 63 Mutual insurance 36, 40 insurance successful in Illinois 41 National Board of Fire Underwriters, actuarial bureau of 154 Board of Fire Underwriters, deceptive offer of 154, 156 Board of Fire Underwriters, minority report of 'actuarial committee of National Convention Insurance Commissioners on 154 Board of Fire Underwriters, motive for ref^^sing to furnish complete statistics 156 Board of Fire Underwriters, origin of 154 Board of Fire Underwriters is a "trust" or "combine" 132 Convention of Insurance Commissioners, report of actuarial committee on actuarial bureau of National Board of Fire Underwriters 154 spirit, means' of engendering a higher 135 Natural resources, conservation of 74 Nature, effect of its forces on mankind 7 New York, fire insurance compared with Chicago 172 Newspapers commend reform efforts of Superintendent Potts 188 New Zealand, State fire insurance in 167 Nidhogge, serpent of Scandinavian mythology 64 Norns of Scandinavian mythology 64 Norway, fire insurance premium rates in 182 history of fire Insurance in 166 Officers of insurance companies, excessive salaries 207 Officials of fraternals, fiduciary relationship of 26 Old age annuities 93, 128 age benefits and poverty 57, 75 Opportunities equalized by insurance 18 Ordinary life insurance, average amount of policies 24 Overinsurance, conflagrations and fire hazard 150 Paris, words liberty, fraternity and equality on public buildings of 22 Peace would be brought about by fraternal principles 31 Pensions for school teachers 75 Perpetuity of fraternalism 22 Perversion of mercenary idea of insurance 199 Philanthropists should aid vital conservation 136 Policies, blanket 266 Policies, cancellation of fire insurance '. 209 valued 211 486 Note. — See special index p. 468 for names and classes of insured property. PA8E. Policy, fire insurance, standard 208 Politics in fraternals 26 Population of Illinois, make up of 32 of Illinois, original constituents of 33 Potts, RufuB M., administration of Illinois insurance department by 221 Rufus M., fire insurance efforts commended by newspapers 188 Poverty and old age benefits 75 from bid age and other causes 57, 86 Practicability of universal welfare insurance 92 "Preferred rates" in Illinois life insurance 178 Premature deaths, statistics of in the United States 89 Present economic and social conditlbns best in history 86 Press of Illinois 32 Prevention better than cure in relation to industrial accidents 52 of fires 212 of fires, attitude of insurance companies toward 183, 192 Prevention benefits from welfare insurance 95 Private business, interference with by state welfare insurance 95 Production and distribution, problems of 81 Productive cooperation 37 Products, exchange of necessary 37 Profit and surplus percentage, deceptive calculation of by insurance com- panies 203, 207 Progress and stagnation 33 further social depends on universal insurance 20 Promotion schemes for organization of insurance companies 229 Property, fire losses in different classes, special classification index 468 owners should investigate fire insurance rates 273 Prosperity of Illinois, effect of 33 Protecting congested districts in cities 143 Protection law, proposed, for whole family 251 Public interest, test to be applied to all alliances of enterprises 62 Qualification of good life insurance agent 70 Quo warranto suit against Chicago Board of Underwriters 224 Rates for fire insurance 155 in fire insurance, high and low, both wrong 157, 267 of fire insurance in Chicago compared with other cities 171 of fire insurance premiums 171 Rate-making in fire insurance, basis of 178 Reason and its power 8 Rebating in life insurance t 67 Recommendations, legislative for 1917 230 Reductions in fire Insurance premium rates in Chicago 226 Reform of fire insurance fought by insurance journals 186 in fire insurance 218 Regulating fire insurance rates, prerequisites to 201 Regulation and supervision of insurance 79 Reinsurance, foreign and net lines 209 Relief work for unemployment 105 Relieving misfortune by modern method^ 9 Remedy for evils" in fraternals 26 Reserves, conditions when not necessary in life insurance 47 ordinarily necessary in life insurance 48 Ricks, Chief Justice of Illinois, opinion of on insurance 106 Risks, distribution of 194 Romberg, Col. Edward, speech by, before Chicago Real Estate Board 192 Ruling on legality of "underwriters' annexes or agencies" 141 487 Note. — See special index p. 468 for names and classes of insured property. PAGE. Kural credits by cooperation 43 Russia, history of fire insurance in 166 Safety in adequate rates and reserves lor mutual life insurance 49 Salaries of insurance oflScers, excessive 207 Saving to people by State fire insurance 200 School instruction in cooperative methods 43 Selfish position of insurance of interests against State insurance Ill Shortening hours of labor, experience with in United States 55 Sickness, early methods for relief of 113 statistics of in the United States 88 • Simulation in sickness and accident insurance 212 Specialization, effects of in industry 19 Sprinklered risks 266 Standardization duty of fraternal congress ,. . 26 lack of ,. 25 of insurance in general 49 of the fire insurance business 196 Standard policy 208 State fire insurance 190, 199 fire insurance business no injustice ^ 196 fire insurance, constitutionality of 196 fire insurance in New Zealand 167 fire insurance, necessity for 42 fire insurance old and well tried 167 insurance 17, 40, 72, 95 insurance and interference with private business 95 insurance only solution of social insurance problems 121 supervision of insurance in Illinois 220 Statistics, advantage of uniform for whole of United States 273 of fire insurance experience 152, 264 of fire insurance, previous worthless 262 of unemployment 101, 104 Stock transactions, illegitimate of fire insurance companies 205 Strikes and lock-outs, disturbance of industrial conditions 55 Social and economic needs as related to accident and health insurance 59 features in fraternal societies 29 insurance 34, 83, 119, 226 insurance and unemployment, hearing on Federal commission to study. .119 insurance, reason for change of name 85, 98, 129 Socialist, false ideas of extreme 96 Social progress depends on universal insurance 20 system, ultimate tendency of present 33 must be built from the bottom 80 Speculation and farmers' money deposited in banks 43 Sprinklers, automatic, in conflagration 147 Suffering from accidents, methods of relieving 60 undeserved, methods for relief of 90 Suits against fire insurance combine 261 Supervision of insurance 79 Surplus and profit percentage, deceptive calculation of by insurance com- panies 207 Sweden, history of fire insurance in 16b Switzerland, fire insurance premium rates in 182 history of fire insurance in 165 Sympathy and neighborly assistance origin of insurance 9 488 Note. — See special index p. 468 for names and classes of insured property. PAGE. Tables of fire insurance business in Illinois, 1915, beginning on 27S Tables of fire insurance business in Illinois, 1915, explanation of 275 Talent and genius permitted development by insurance 20 Tantalus and misfortune 20 Tax, fire insurance premiums are a 170 Tax, insurance is 129 Teachers, pension for 75 Testimony of Rufus M. Potts, before bearing on Federal Commission to study social insurance and unemployment 119 Texas fire insurance law 273 plan of fire insurance regulation of rates 202 Theory of agricultural cooperation 37 of insurance 11 Toast in response to Illinois 31 Tree of life, mystical, of Scandinavian mythology 64 Trust, National Board of Fire Underwriters as a 132 Twisting 61, 66 "Unauthorized" insurance companies 228 "Underwriter annex" litigation 185 definition of ; 139 "Underwriters' annexes and agencies" 138 annexes or agencies, ruling on legality of 141 plan, origin of 139 laboratories 194 policies, deceptive 139 Unemployment, a problem in earliest industrial civilization 98 causes and effects of 100, 101 definition of and remedy for 99, 104 insurance, address on 98 insurance, against 106 insurance as a preventive of unemployment 110 insurance, benefits in commercial and industrial crises 108, 109 insurance, compulsory only practical method 110 insurance, effect of not detrimental to worker 109 insurance, voluntary a failure 110 relief work for 105 Unfortunate, former method of relieving 9 Uniform death rate, attainment of approximate, in mutual life insurance societies possible 47 life assessments, conditions necessary 47 United States, history of fire insurance in 168 Universal insurance 19, 20, 74, 81, 91 Utilitarianism defined 12 of insurance 7, 11 Value of insurance property should be stated in detail in application 208 "Valued" policies 211 Vice, not proper subject for insurance 91 Vision of universal insurance 21 Visions of the past 36 Vital conservation 135 conservation, method of disseminating information on 136 Voluntary unemployment 99 unemployment insurance failure 110 Wage-earners must provide against disaster ." 24 War, European and fraternalism 29 Washington, freedom gained under , 35 489 Note. — See special index p. 46S for names and classes of insured property. PAGE. Welfare and supply of commodities 14 insurance , 83, 226 insurance, constitutionality of National 125 insurance, definition 85, 95, 119 insurance, exemptions f rorn, compulsory 93 insurance, how best effected 92 insurance, need for in United States 85 insurance preserves civilization r 97 insurance, prevention benefits of 95 insurance, recommendations concerning 232 insurance, reason for tbis name instead of social insurance 85, 98 of masses higher than ever before 15 Whole family protection '. 232, 251 Wilson, freedom made permanent under 35 Wired glass windows in coBflagration. 147 Wisconsin, life insurance fund in 124 Women and employment 54 Woodmen society born in Illinois 31 Workingmen, improvident and welfare 56 Workingmen's insurance 84 Workmen's compensation adopted by foreign countries 52 compensation and labor conditions 51 compensation begins in 1910 in United States 52 compensation enacted in Illinois 53 compensation, Illinois experience in 53 compensation law brings business stability, greater prosperity, etc 53 compensation law for industrial accidents 59 compensation, rapid spread of .198 World under universal insurance happier , 21 -32 P S Date Due Library Bureau Cat. No. 1137 irf ii6i<- A2 p87 Author "^°'- Potts, Rufus M. . fife Addresses and papers on ^"P" insurance , . . . iisgjjjSnfigv,