FIRE-INSURANCE. Loss through fire constitutes one of the great hazards confront ing society to-day, and the scientific conduct of business requires that some organized method for the elimination of this risk be used by property owners. Three methods of elimination may be employed, viz.: (1) the adoption of measures designed to prevent the origin and spread of fire ; (2) so-called self insurance, designed to enable the property owner to carry the risk himself ; and (3) insur ance, as commonly understood, whereby for a definite consideration, called the premium, the risk of loss is transferred to some other per son or group of persons called the insurer. While all the foregoing methods are employed extensively to-day, it should be stated that self insurance can be used safely and scientifically only by corporations or individuals whose prop erty consists of a sufficiently large number of separate units so widely distributed and so nearly equal in value as to make the applica tion of the law of average possible and to render negligible the conflagration hazard. It is for this reason that many large corporations, while carrying most of their insurance in a self-insurance fund, nevertheless insure the more costly items of their property with insur ance companies. Moreover, should self-insur ance become possible in a given business, it is important that the transition from a system of insurance by companies to a plan of self-insur ance should be gradual.
Statistics clearly indicate that self-insurance has its serious limitations and that with every succeeding decade a larger proportion of the nation's wealth, subject to destruction by fire, is being protected by insurance with regular insurance companies. In other words, less and less of the fire hazard is assumed by capital itself, and an increasing reliance is being placed upon insurance and fire prevention, the latter serving the purpose of reducing the cost of fire insurance rather than in eliminating the need for insurance itself. From an average of $6,394,000,000 of insur ance carried by American and foreign com panies in the United States during the years 1877-80, the total outstanding risks carried by these companies increased to an average of $10,992,000,000 during 1881-90, to $18,34: 000, 000 during 1891-1900, to $31,924,000,000 during 1901-10, to $46,276,000,000 in 1911, and to over $63,000,000,000 in 1916. Since 1900 the aver age rate per $100 of risk carried also shows a very appreciable decline, namely, from $1.1116 to $.9915, or approximately 10 per cent, and this despite the fact that the period under con sideration has been noteworthy for a material rise in prices along nearly all lines. In the meantime the companies have greatly increased their financial strength. Thus, as regards the joint-stock fire insurance companies licensed in New York State, and writing probably 80 to 90 per cent of the nation's fire insurance, it appears that during the half century between 1867-1917 (with approximately the same num ber of companies operating) the capital has more than doubled, the assets have increased by nearly 860 per cent, while the net surplus is larger by about 22 times.
Briefly outlined, the history of fire insur ance in the United States divides itself into four distinct periods, viz.: (1) the pioneering stage, ending with the New York fire of 1835; (2) the penod from 1835 to the close of the Civil War; (3) the period from 1866 to 1880; and (4) the years from 1880 to the present.
Dunng the first period fire underwrit ing was largely of a personal or partner ship character, the interested parties being usually leading merchants in the principal manufacturing and mercantile cities. The Philadelphia Contributionship, in many re spects patterned after the Hand-In-Hand of London (established toward the close of the 17th century), was organized on 13 April 1752, and was the first fire Insurance company to be established in the United States. This effort at corporate underwriting was followed by the establishment of the Mutual Assurance Com pany in 1784, the Knickerbocker Fire in 1787, the Baltimore Equitable Society and the In surance Company of North America in 1794, the Mutual Assurance Company of the city of Norwich in 1795, the Columbian Insurance Company in 1801 and the Hartford Insurance Company in 1803. It is noteworthy that the first two companies mentioned are still in ex istence and still continue their original plan of issuing so-called perpetual policies. By 1820 some 28 stock companies had been estab lished, of which 17 were located in New York, 6 in Pennsylvania, 2 in Connecticut and 1 each in Rhode Island, New Jersey and Massa chusetts. With few exceptions, the companies of this period were purely local in character and seldom transacted business outside of the cities where they were located. Most of the companies also transacted both fire and marine insurance, many placing greatest emphasis upon the latter. The contracts issued usually furnished no security beyond current receipts and the good faith of the men behind the com panies. Foreign companies, it should also be added, were generally forbidden to transact business in this country, a policy continued in certain States even after 1835. The New York conflagration of 1835 proved the undoing of most of the New York stock companies, and thus served to pave the way toward the elimi nation of many serious shortcomings in the business. Not only did the leading companies begin a policy of classifying risks and of treat ing the conflagration hazard with some sort of scientific consideration, but a greatly increased emphasis was placed upon the necessity for making proper provision for the financial stabil ity of companies. Thus Massachusetts, in 1837, provided that companies should maintain a fund to insure contracts; while New York, in 1853, followed with a reserve law. Such stat utory acts constituted the beginning of what are known as reserve or unearned premium fund laws, to • be found at present on the statute books of nearly every State, and also marked the entrance of the State into the field of fire insurance, a movement which was subsequently to become of much greater importance. Despite such legislation, however, fire insurance com panies generally continued to pursue a policy throughout this period of keeping up dividend payments at the expense of an adequate sur plus. In fact it was not until after the Chicago and Boston conflagrations that the companies came to a full realization of the necessity and duty of maintaining a large working surplus. Practically all the companies also continued at this time to devise their own policy contracts, and little effort was apparently made to give to the business community the benefits of the greater certainty and fairness resulting from the mandatory use of a well-constructed stand ard policy by all underwriters.