It may be added that, in view of the difficulty of using the coinsurance clause in certain localities, particularly where anti-coinsurance laws exist, companies frequently use the so called graded rate system. Mathematically the graded rate system (under. which, in view of a higher premium rate, the property owner is promised all losses in full) and the use•of the coinsurance clause (under which property own ers paying the same premium are promised pay ment of their losses only in the proportion that the insurance carried bears to the insurance re quired) can be made to approximately equal each other.
(5) Co-operation through Underwriters' Associations.— Success in the use of standard forms, the maintenance of adequate and scien tifically made rates, and the enforcement of just principles and practices requires a high degree of co-operation between the numerous companies operating throughout the country. This united action has been attained chiefly through the medium of so-called underwriters' associations, and at present there are few of the regular stock companies that are not sub ject to, and there is scarcely a section of the country that does not fall within, the jurisdic tion of some association. Classified according to territory covered, the various underwriters' organizations (designated under the various names of uassociation,"union" or °exchange))) may be divided into (1) Local (urban or sub urban), such as the New York Fire Insurance Exchange and the Philadelphia Underwriters' Association ; (2) Sectional, such as the Eastern Union, the Western Union, the Department of the Middle States, the Underwriters' Association of New York State, the New England Fire In surance Exchange, the South Eastern Tariff Association, the Rocky Mountain Fire Under writers' Association and the Underwriters' As sociation of the Pacific, and (3) National, such as the National Fire Underwriters' Association and the National Fire Protection Association. Since most of the leading companies transact business in different sections of the country, it follows that they hold membership and exert their influence in various associations. Con sequently there has developed a tendency toward uniformity of practices throughout the country, unless local conditions dictate otherwise.
The local and sectional associations occupy themselves largely with the more practical and operating phases of the fire insurance business. Their activity relates chiefly to the maintenance of survey and inspection departments, the mak ing of rates, schedules and standards which shall be binding on all members, the regulation of brokers' and agents' commissions, the standardi zation of long and short-term rates, the adoption of clauses and endorsements, the elimination of objectional practices, such as rebating and rate cutting, the expulsion of undesirable members and the securing of the benefits of mutual council and assistance. The national associations, on the other hand, concern themselves primarily with matters that may be described as technical and educational. Most of their work is performed through special committees. Briefly summar ized, the principal services rendered thus far have been the following : (1) Education of the public in the protec tive value of fire insurance. (2) Lowering of expenses, particularly in the reduction of arson and incendiarism and the elimination of unjuz,t and unwise legislation. (3) Comparison of company data and the compilation and publica tion of statistical experience. (4) Inspection of the protective facilities of cities and towns and the suggestion of improvements. (5) Prepara
tions of standards for the installation of light ing and heating devices. (6) Formulation of correct building codes. (7) Improvement in the methods of adjusting losses. (8) Adoption of a standard fire policy and the formulation of standard clauses. (9) Testing and inspec tion of fire preventive and protective devices of all sorts and the establishment of efficiency standards in connection therewith.
(6) State Regulation.— Legislation affects fire insurance at so many points that almost every phase of the business may be said to he regulated. The earliest legislation concerned itself chiefly with the organization and financing of companies, the supervision of agents, brok ers and officials, the prohibition of discrimina tion and the establishment of reserve stand ards. Later the legislatures saw fit to adopt laws designed to compel the companies to pur sue a certain course of action, and this type of legislation proved for the most part to be inimitable to the best interests of the business. Four such types of legislation, all of an adverse character, deserve mention, viz.: (1) anti-coin surance laws; (2) valued policy laws which, in the case of a total building loss, compelled the company to settle for the full face value of the policy, although the actual loss suffered might be less; (3) retaliatory laws which aimed to place the State passing the same in such a position of preparedness that it might promptly retaliate upon the companies of another State whenever that State saw fit to inflict harsh measures upon foreign companies doing busi ness within its borders ; and (4) so-called anti-compact laws which sought to prevent com panies from joining underwriters' associations of any kind and thus gave expression to the current incorrect belief that open competition was the life of trade and that co-operation was unnecessary and indicative of collusion for purposes of extortion and unfair treatment. As time went on, and financial needs increased, the States also took full advantage of their taxing power, with the result that heavy taxation, frequently imposed without any ref erence to the profits realized from indem nities, has become one of the most serious problems confronting the business. In re cent years some States, like Texas, Kansas, Nebraska, Louisiana, Kentucky and South Car olina, also saw fit to bring the subject of rating under their immediate control, either through a commission or department appointed for the purpose. Fire insurance, however, cannot be said to have State limits. The subject is also so highly technical in character and so depend ent upon the national experience of the com panies that it is questionable whether State made rates will ever be accepted as a solution of the rating problem. Both the Illinois and New York Commissions appointed for an in vestigation of the subject reported to this effect in 1911. The tendency just now seems to De in favor of rate regulation rather than rate fixing. Several leading States, including New York and Pennsylvania, have already passed laws which permit rating organizations to exist and which leave with them the fixing of rates. But this power is not given free from restric tions. Instead, underwriters' associations are brought under the full regulatory control of the State, and all discrimination against com panies or property owners is prohibited. More over, full publicity is required as regards all plans and methods in arriving at any property owner's rate, the State reserving power to order such changes as may be deemed necessary.