(2) Schedule properties became more complex in character, it necessarily fol lowed that accuracy and justice in rate-making required a departure from the old method of arriving at a rate through personal judgment. Accordingly we have the adoption of rating by schedule, a system which makes possible the scientific determination of rates by taking into account the numerous factors that must neces sarily enter, such as the good and bad features of the locality, the good and bad features of construction, the presence or absence of fire appliances, the occupancy, exposure and man agement of the risk, and the presence or ab sence of coinsurance, adverse legislation, etc. Such a procedure gives, among other things, the advantages of greater accuracy in rate making and greater equity between different property owners as well as communities. It also encourages proper construction and the in stallation of fire preventive appliances, tends to lessen discrimination between different classes of risks, exerts a salutary effect in reducing unwholesome competition and cutting of rates, and discourages the enactment of so-called anti-compact laws.
In 1893 F. C. Moore and various associates promulgated the 'Universal Mercantile Sched ule," and in the late 90's A. F. Dean prepared his so-called °Mercantile• Tariff and Exposure Formula for the Measurement of Fire Hazards." These two schedules, or modified forms thereof, soon became the prevailing basis for rates in the United States, the Universal Mercantile Sched ule being adopted most generally in the East and the Dean Schedule winning greatest favor in the West. Both schedules, however, are still 'judgment systems" in that they represent col lective estimates rather than actual experience. They represent, however, a decided improvement over the old system based on individual judg ment. Within the last few years a further de velopment is occurring in the direction of rate making on the basis of actual experience. The most important step thus far in this direction has been the formulation by E. G. Richards of the 'Experience Grading and Rating Schedule," or the so-called 'E. G. R. Schedule." While not in actual use as yet, this proposed schedule has been the subject of much discussion and would seem to indicate that actual experience will soon, as far as it is possible to do so, figure prominently in fire rating systems.
(3) Improved Inspection Systems.— On the theory that the prevention of fires is cheaper than the payment of losses, numerous so-called factory mutuals developed exceedingly efficient systems of inspections and fire preventive ap pliances. The competition that resulted from such methods had to be met by the stock com panies. Accordingly, they were forded to create organizations (such as the Factory Insurance Association organized in 1890) which would specialize in the inspection of special properties and the writing of large policies upon pro tected risks. Moreover, the companies also be gan to participate actively in the spread of fire preventive methods, especially through their national associations, by enlisting the co operation of manufacturers, architects, chemists and civic organizations, and by creating a special laboratory for the testing of new ap pliances and processes designed to cut down the fire waste. Loss adjustments also came in for
decided improvement. Not only were special organizations created for the adjustment of losses, whereby companies unwilling to have special agents for the purpose were enabled to secure the•services of trained experts, but special corporations or company organizations were created for the salvaging of damaged goods.
(4) General Use of resisted in various States through the adoption of so-called anti-coinsurance laws, the fire in surance companies of the country have suc ceeded in enforcing the use of coinsurance in one form or another. Briefly defined, coinsur ance means that the insured shall have °any loss paid in the proportion that the insurance carried bears to the insurance required." Usually the amount of insurance required is 80 per cent of the value of the property insured, but any other percentage may be used, depend ing upon the extent to which the property is considered subject to destruction by fire. In other words the insured agrees to maintain his insurance to at least a certain specified percent age, but in case it proves to be less it is under stood that the insured shall be regarded as a self-insurer for the deficit. Violation of the agreement does not invalidate the insurance, but instead places the insured in the position of being coinsurer with the insurance company.
It is remarkable, indeed, that recognition of the justice of coinsurance should have been so long deferred and that the practice should have been so violently resisted, particularly in the form of anti-coinsurance laws. Not only is coinsurance necessary to enable the companies to secure an adequate income, but, from the standpoint of the public, fire insurance must be regarded as a community affair. Fire insur ance premiums constitute a tax on the com munity and each property owner should be asked to contribute his proper share to the total fire insurance fund. Moreover, coinsurance protects small property owners against large owners whose property may consist of various items, so scattered as to render each a separate risk. Thus, if large corporations, for example, were not compelled to insure their total prop erty to a certain percentage• of the value (thus being compelled to pay premiums in the same proportion) they could secure full protection by simply taking out a blanket policy for an amount equal to the value of the largest item. The coinsurance principle is also necessary in the rating of fire-proof risks where manifestly the rate per $100 of insurance should decrease as the proportion of the risk increases.