It. KINos INSCRANL t. CuMpAN11.s AND THEIR l'llARACTLIUSTIcs. Public. and Private I nsur ance.-111.aranee companies may be classified in Various ways according to the characteristics on which the classification is based. Thus with re• sped to the nature of the insuring body public insurance may be distinguished from private in surance•. Putilic insurance is insurance issued by a body politic, whether nation, State, or a minor civil division; private insurance is insur ance issued by a private person or by a group of private persons. Piddle insurance will be dis cussed in the concluding part of this article.
J1 ;dual and Joint -:•4 tuck .—Private insurance may he further subdivided MU tiia insurance and insurance for gain. sometimes called somntereiaf insurance. In it simplest form a mutual insurance company is based un an agreement entered into h• each member to pay- a share of the loss sustained by any other member from certain speeilied causes. The pro portion to be paid by each member is based on the risks to which he himself subjects the com pany. :Nlutual insurance is seldom found ex cept in the ease of risks which are nearly uni form in eharacter, so that the degree of risk varies almost invariably with the amount of in surance. Thus we find one class of tire insurance companies insuring cotton-mills, :111. other insuring packing houses, a third insuring farm buildings, and a fourth confined to city dwellings. It is the comparative uniturmity of the risks involved. which has been partly respon sible for the general application of the mutual principle to life insurance.
When the funds to reimburse losses are leeted by assessment after the oerurrence of the loss, the annual contribution of each member, that is, the cost of his insurance, is inure or less uncertain. has already been pointed nut, insurance in a mutual emnpan• collecting its funds in that way is the substitution of a smaller degree of uncertainty for a greater de gree. of the prospect of making small annual pay ments varying within a comparatively slight range for a much smaller prohaMlity of a far greater loss. The more regular the loss from year to year, the less are the fluctuations in the assessments, and therefore the more advantage ous the insurance on the mutual plan. The rela tively great regularity of loss from year to year has made possible the application of the assess. ment principle to life insurance to a far greater extent than to ether kinds.
Very few mutual insurance companies are now run on the pare assessment principle. In nearly all companies there is some aecumulation of reserves which may he used to equalize the premiums in spite of considerable fluctuations in the amount of hiss. of the older companies, especially in fire insurance, have thus aecumu hated very large reserves. willed] enable them to return to the insured in the form of dividend- a considerable part of the preminms eolleeted.
It is in life insurance that the mutual prin ciple is applied most extensively. The practical ditferenee between the old-line mutual companies and the joint-stock companies is very slight.
Of the three life insurance companies in the United States having over $1,000.000,000 of in surance in force, the Mutual and the New York are mutual companies, while the Equitable is a joint-stock company. The capital stock of the Equitable, however. is only $100.000, and the annual dividend of i per cent. accounts for only 7000 out of a total annual disbursement of nearly $40,000,000. The share of the $7000 assessed against each of the 400,000 policies in force is a negligible element in the cost of in surance. The capital stock of a stock company is of importance only so long as it constitutes a considerable part of the fund which guaran tees security to the poliey-holders. This is the case only while a company is small. All the older companies have surpluses over and above the amount legally necessary for the protection of the policy-holders which far exceed the amount of the capital stock. For example, the Equitable has a surplus of nearly $75,000.000. Even in the ease of companies with a large capital stock like the Prudential and the Metropolitan, each of which is capitalized at $2,000.000, the surplus is several times as large as the capital stock.
Alutual companies are most numerous in fire insurance. These are small companies, usually confining their operations to a limited area and to some one or two classes of risks. The reason for their existence is usually to be found in the belief, whether justifiable or not, that the stock companies are not managed as economically as they ought to he. thus enabling the mutual com panies to make a saving in the cost of manage ment: and that the particular kind of property in question is improperly classified. and the premium rate in consequence unjustifiably high.