No discussion of fire insurance would be com plete without a reference to the principal types of underwriters transacting the business. Five such types of insurers (or plans of insurance) furnish practically all of the insurance in the United States to-day, viz.: (1) individual underwriting in the form of Lloyds associa tions ; (2) assessment mutuals (township, county and State) ; (3) factory mutuals; (4) inter-insurer or reciprocal underwriters' associations, and (5) joint-stock companies. Individual underwriting through Lloyds as sociations, named after the famous Lloyds of London, is on the decline in this country and ranks as the least important of the several classes enumerated above. Although some of these organizations involve unlimited liability on the part of their members, they usually represent voluntary partnerships in which each member assumes liability only for the payment of losses up to a specified amount. The secu rity behind the contract therefore depends chiefly upon the personal and financial standing of the members composing the partnership, although in some cases additional security exists in the form of a special guarantee fund for loss pay ments. It is important not to confuse American Lloyds associations with the famous London Lloyds. This latter organization also transacts a considerable volume of fire insurance in the United States and has acquired a position of the highest international reputation. While it is true that all business is assumed by the mem bers of the organization as individuals (no re sponsibility being assumed by the corporation for the solvency of its members), London Lloyds presents the advantage of a well-organ ized institution, which limits admission to per sons of recognized standing and safeguards the transactions of its members by the rigid en forcement of a strict code of rules and business honor.
Local mutuals are exceedingly numerous and transact a considerable share of the nation's total fire insurance. They were usually organized with a view to charging lower rates than those obtainable from the regular stock companies and then to provide for additional Payments in case of necessity through some kind of assessment arrangement. Where their ac tivity is limited to a restricted territory, thus enabling the members to know each other, such mutuals have demonstrated the advantages of economy and the practical elimination of the moral hazard and over-valuation. Past history, however, shows a heavy mortality among this class of companies. The reasons for this ex perience have usually been three, viz., restric tion of the business in such a way as to make inapplicable the law of average in case several losses occur within a short space of time, in ability to enforce the payment of assessments, and unscicntific procedure in the determination of rates. Past experience also shows that State mutuals possess the further serious disadvan tages of an increased moral hazard, due to the larger area over which they operate, and the tendency to charge inadequate rates to meet the competition of well-established stock companies.
To overcome the aforementioned disadvan tages, a number of legislative restrictions have been adopted with reference to local mutuals. In most instances this legislation has aimed to prohibit their operation in cities subject to a conflagration hazard, to restrict their business to risks of the non-hazardous type and to a limited area of one or a few counties, to limit the volume of insurance placed on any one risk and to require a certain volume of applications, usually from $50,000 to $200,000, before per mitting the transaction of business.
As distinguished from ordinary mutuals, so called or amill° mutuals confine them selves to the insurance of factory properties or special types of industries, which under ordinary conditions rank among ' the most hazardous of risks. Like the local mutuals, this type of organization originated largely as a protest to the high rates charged by stock companies, but, unlike local mutuals, it was begun with the set purpose of making fire prevention and not insurance the primary pur pose. In this respect factory mutuals soon proved a powerful competitor to the regular companies; in fact much of the progress of stock company insurance of factory risks is traceable to this competition. Like ordinary mutuals, the factory mutual plan also incor porates the assessment feature, usually to an amount equal to three to five times the gross premium. But there are very few, if any, cases on record where assessments have been levied to pay losses. Not only are redundant premiums charged with the idea of refunding the unused portion in dividends, but in the great majority of instances it has been a de liberate policy to accumulate a surplus much in excess of a total year's losses. The members of these mutuals being business men, it follows that an assessment could be easily collected if it should ever prove necessary to levy one.
As supplementing the aforementioned fac tors, several other essential principles are strictly observed. The installation of automatic sprinklers and the standardization of properties from the fire prevention standpoint are almost .
universally insisted on. Rigid inspections are also made periodically with a view to making suggestions for improvements and to termi nate the insurance if recommendations are not complied with. Moreover, most of the associa tions have combined into reinsurance unions for the purpose of apportioning large risks over the entire membership. Combining all the aforementioned factors, it is not surprising that factory mutuals should present a remarkable record of success. It is reported that they have succeeded in bringing the average rate down to the remarkable figure of about 7 cents per $100 of insurance. The premiums charged, as already indicated, are much larger, but unused portions of the premium are returned speci fied periods. During recent years it appears that many of these mutuals have regularly Pala dividends equal to from 60 to 94 per cent of the premium income.