FIRE PREMIUM RATE 1. Problem of the rate.—When fire insurance was first established rate-making must have been largely guesswork. Barbon, who was apparently success ful in his insurance adventure, either by good for tune or some clue to the problem of which we do not know, evidently made a rate that secured business and at the same time furnished sufficient funds to conduct it. The offices that were founded somewhat later than Barbon's, have handed down to us copies of the tables showing the rates they charged, but no information as to the data on which they were based. In the begin ning, fire insurance rates were not based on the value of the property; the policies were issued, and the rate charged on the rental value of the property. This plan did not last more than a generation and, from that time on, the value of the property has been the basis on which the insurance policies have been issued and the rate determined.
It is evident that the business could not have been in existence a very long time before some fires oc curred, and even these may have been few among the insured properties. However, they furnished infor mation on which the underwriter could begin to form a judgment as to a correct rate. In the United States in 1795, when a mutual company was being organized in Boston, Massachusetts, a very careful search was made into the number of properties that had been de stroyed or damaged by fire for some thirty-eight years previous to the organization of the company. Pre vious to 1800, there is no other record of such search being made.
The experience of the companies showed within about a generation that certain properties or certain kinds of businesses were far more subject to fires than other kinds. A private dwelling, for instance, was not as liable to take fire as a business house, and such facts found expression in different rates for the dif ferent classes.
2. Class classes, which came to be some seven in number, and so continued for a long time, divided properties on the basis of non-hazardous; hazardous ; extra hazardous and special. Between
these, as between non-hazardous and hazardous, they had half classes so that out of this main giOup of four they developed the seven classes with varying rates of insurance. The principle of this group-rating sys tem was very simple. In each case there was the rate for the building with about five cents added for each class from the lowest up to the highest. The contents of the non-hazardous class were written at the same rate of insurance as the building, but beginning with the next group, as the half hazardous, an additional charge for the contents was made over and above the proper charge for the building. This simple system lasted until the middle of the 19th century, with the single exception, that before that time some more minute analyses of certain kinds of properties, such as mills, had been made.
3. First tariff or schedule.—This method Of more closely analyzing properties offered for insurance originated in England and gave rise to tariffs. The first tariff was adopted in 1843 for the woolen mills. From that time on, various classes of busi nesses have been taken up and special tariffs adopted for each kind of business.
4. Rating in the United States.—The entire prac tice in the United States strictly followed that devel oped in England except that the rates were increased as the fires were more numerous. There was the same grouping into seven different classes. This was fol lowed in due course by the adoption of tariffs, or as they became and are now known, schedules. The word tariff never became popular when applied to the rating of property. Indeed, it is probably true that the use of the word tariff in connection with ra ting matters was the occasion of some of the hostilities to the rate-making methods of fire insurance com panies, owing to the fact that the word was so closely allied with political matters.