Credit' fasurome.—t•redit insurance under takes to indemnify merchants and business men who give credit for losses through bad debts. This form of insurance was first introduced into the United States about !Stift In 1).493 there were fonr Ame•iean companies in the business. Of these companies three have since failed. In I S97) one forei•m company was admitted to prac tice in New York. The risks written in 1901 by the two companies in operation amounted to nearly $22,000.000. The suceessfill proeelition of this form of underwriting is extremely digi t-ult. to the high degree of moral risk in volved. To guard a- far as possible against the of the systiln lwy the insured, a very inge nious mei hod•s The insurance applied only to credits given to persons with a rating in the mereantile a,meies, and the amount of credit to he given to them was usually limited to 20 per cent. of their lowest capital rating. Moreover, the insurance did not apply to any part ieular credit. but was based on the average loss for a year. The person applying for insurance was required to furnish a statement of the amount of his eredits and the amount of his losses from bad debts for a number of years, and the average an nual ratio of losses to credits was ascertained. The insurance applied only in those years when the ratio of loss to credits exceeded the average, and covered only the excess of the loss above the average. The failure of three out of four companies is not conclusive evidence that the business cannot successfully be carried on, since the period of depression beginning in 1893 sub jected them to a severe strain before they were well established. The business of the surviving companies is rapidly increasing, and seems to be reasonably profitable.
There are many other interesting applications of the insurance principle which must be passed ON er without notice. As indications of its pos sible development may be mentioned the follow ing instances. The saloon-keepers in a particu lar city form an association which undertakes to pay an indemnity to any member who is un able to secure a renewal of his license; the news paper publishers of Finland enter into an agree ment to indemnify one another for losses incur red through the suppression of particular issues of their papers by the order of the Russian Gov ernment; finally, the manufacturers of Austria bind themselves to pay indemnities for losses occasioned ay strikes instituted by workers in their factories.
Preventire Actirity of Insurance Companies.— In comparing premiums and indemnities for the purpose of ascertaining the actual cost of the administration of the insurance business, it 'is necessary to bear in mind the fact that insurance companies carry on other forms of activity be sides guaranteeing indemnity. One of the most prevalent of these forms is their preventive ac tivity. under which name may be included all the efforts which the companies make io prevent the occurrence of the event against whose conse quences they grant insurance. The relative
amount of such activity varies greatly in the dif ferent kinds of insurance. There is very little of it in life insurance. In accident insurance we find the companies distributing books and pam phlets containing information as to the first aid to the injured. It is in the insurance of property, however, that such activity is most common. In the ease of elevator and steam boiler insurance a very considerable part of the expense of management is due to the systematic inspection of insured elevators and boilers which the companies carry on.
In the early days of insurance the distinction between insurance and prevention was not very sharply drawn. The early English fire insurance companies, for example, laid special emphasis on the service which they rendered the community through the maintenance of fire brigades. A sur vival of this confusion of ideas can lie seen in the legislation of many of our States compelling fire insurance companies to support wholly or in part the fire service of the cities. Whatever pay ments the companies make for such service are made out of the funds collected from the insured. The injustice of compelling a limited of property-owners. the insured. to support such an institution as the fire department. intended for the benefit and use of the whole community, seems too obvious to need arrrument.
While life insurance companies do little or nothing to prevent the occurrence of loss, only a small part of their activity can be strictly called insurance. A very large proportion of the premiums they receive are rather in the nature of investment. The relation between the two forms of activity is discussed in the article on LIFE INSURANCE.
fiC-i/ISU/ThiCC.—The custom of re-insurance which prevails to a great extent among insur ance companies may be briefly described. To avoid the possibility of being called upon to pay excessive indemnities at any time, insurance com panies are accustomed to limit the amount of insurance that they will carry on any one risk. The maximum risk carried by one company may be .;;10,000, that of another company $50.000. If a company insures a piece of property for more than the maximum risk it carries, it protects itself by re-insuring the excess in another com pany. The practice of re-insurance is naturally seldom found among mutual companies, but it is very common among stock companies. \lany of the latter have from 10 to 20 per cent. of the risks they have d re-insured. while occa sionally one is found with three-fourths of its risks so protected. Conversely, there are com panies which devote themselves entirely to the practice of re-insurance, issuing no policies di rectly to property-owners.