Other Branches Of Casualty Insurance
( Originally Published 1911 )
Less important branches.—The forms of casualty insurance thus far treated represent the leading branches from a premium production standpoint to-day, and probably will continue to do so in the future. There are other branches which, while important, do not from a premium standpoint compare or promise to compare with the classes which have been considered. These may be briefly noted.
Plate glass insurance.—Plate glass insurance came into existence almost simultaneously with the invention of plate glass. Its premium receipts now amount to about $4,000,000 per year, and it is estimated that something like 350,000 risks are insured under this form of cover. Plate glass insurance has developed an interesting and historical experience of its own, and those engaged in it find it an interesting specialty. The problems that have to be considered are due to the different uses to which this type of glass is being put, and the different forms which it takes. We are apt to think of plate glass as related mostly to store fronts. This, naturally, is its principal use. It may be said that the larger panes of window glass are not looked upon with any great amount of desire by the plate glass insurer. The method of setting, whether in wooden or glass frames, whether the glass be of the show-case or the ordinary dwelling type; whether it be bent or straight, whether it be cathedral glass, and whether or not there be lettering upon it,—all these points and many other interesting considerations have to be taken into account when plate glass is to be insured.
Steam boiler insurance.—Steam boiler insurance differs from many other forms in this one interesting point, namely : that the basic idea is prevention of the thing insured against rather than payment of indemnity because the occurrence takes place. Losses are paid, of course, when the accidents happen, but a larger part of the premium is expended in inspection and prevention work than in any other type of insurance.
Origin.—Boiler insurance originated in England, in the year 1854, at Hudders-Field. This was not a genuine insurance company as it paid no losses for accidents, its purpose being merely to inspect boilers and by this inspection point out weaknesses so as to prevent accidents. The Steam Boiler Assurance Company, organized at Manchester, England, took over this early association, and may be considered as the first genuine insurance company of this type.
Boiler insurance in the United States.—In the United States the Hartford Steam Boiler Inspection and Insurance Company was organized in 1866 and was the first to engage in this type of insurance. Its career has been unique because of the fact that for many years it confined its business almost wholly to the insuring of this type of risk. It is probably the only instance of a company writing a single, somewhat restricted, line of business, maintaining its position through so many years. It now writes one or two other lines, but its main work is still the steam boiler risk.
The steam boiler business is carried as a branch or department by several of the casualty companies, and probably a score or more are now engaged in this type of insurance.. Statistics for forty-four years show that in the United States, Canada and Mexico there were in round numbers 11,000 steam boiler explosions, where 11,000 persons met their death, and where in addition over 16,000 were injured.
Causes of boiler explosions. —A boiler explodes whenever any part is unable to stand the strain that is placed upon it. Many, however, suppose that boilers explode only when the water becomes too low. This danger, therefore, is thought to be the only one which must be guarded against. The assumption is wrong. There may be plenty of water in a boiler which is not strong enough to stand the strain in certain parts, and which explodes when any of these parts give way. Boilers explode, as a matter of fact, from a variety of causes and not from any one single cause. The most noted disaster due to a boiler explosion occurred when the boiler of the steamer Sultana exploded on April 27, 1865, near Memphis, Tenn. The boat was loaded with soldiers just released from southern prisons. The boat was destroyed and 1,238 were killed.
The distance to which a boiler may be thrown horizon-tally by an explosion can, of course, be easily deter-mined, but the vertical measurement is another matter. There is an instance where it was accurately determined and found to be over 1,600 feet.
Inspection service.—The inspection service begins before the insurance is accepted on the boiler, and continues throughout the life of the policy. In this type of risk, the insuring company has the privilege of inspecting the boiler at any time it may choose. The inspection service may be external or it may be internal. Naturally, the first service would take into consideration the general conditions when the plant is in operation ; and the latter, of course, when the boiler was not in commission. The preliminary inspection makes it possible to analyze the general management of the plant in regard to the boilers, something which could not be done when the plant was not in operation.
Future of boiler insurance.—A division of the expenses of one insurance company shows that approximately 40 per cent of the income from boiler insurance was paid for inspection expenses; the losses were about 10 per cent. This clearly indicates what is aimed at, namely, to prevent the thing happening rather than to indemnity for it after it does happen. Steam boiler insurance may eventually pass away with the further development of electric power, although there is no prospect of this happening for many years. Whatever future changes there may be, it maybe said that boiler risks do not constitute a growing field of insurance and the premium income has probably attained its maximum.
Credit insurance.—Credit insurance is a very new branch. It is claimed that prior to 1908 it did not exist except in a tentative manner. It had been tried out, but had not attained a stated position in the insurance field. Credit insurance aims to protect the seller, the manufacturer, or the jobber, against losses sustained through the failure of creditors to pay their bills. It was based on the theory that although there must be a primary loss to be borne by the insured, losses above that sum might be covered by insurance. It will readily be seen that this type of insurance could be based on no other principle; the moral hazard would be altogether too great, and insufficient care in the selling of goods would create a loss record against which no company could safely insure.
Two classes of policies.—Credit insurance pollcies fall into two classes, "Regular" and "Combination." The former limits its cover to creditors who have ratings in the first and second class ; the combination type of policy covers not merely these two types of creditors but in addition includes certain coverings on creditors who do not obtain so favorable a rating.
A credit insurance policy, of course, is based on the amount of annual sales ; thus, if the yearly sales were $350,000, the policy would be for $8,000, while if they ran to $1,000,000 the policy would be about $25,000.
Benefits summarized.—The benefits of Credit Insurance are briefly enumerated by President E. M. Treat of the American Credit Indemnity Company as follows :
It adds to a merchant's capital, at small cost, a special re-serve equal to the face of the bond, to meet unexpected losses in business.
It offers collateral security upon inferior accounts, and protects against the calamities which come upon preferred customers.
It affords a guaranty that losses on merchandise sold during the year covered shall not exceed a normal, stated percentage of the gross loss.
It protects profits against impairment through unexpected and unavoidable losses.
It protects against a risk which every merchant must other-wise take.
To carry credit insurance is to complete a chain of protection in business. All work is to the end that goods may be sold. Every part of a business relies on the profits from the sales of the product. Credit insurance protects against excessive losses on the output of the business which ultimately passes, with profits added, into the shape of accounts ; that part which represents the finality of the combined efforts of the entire organization. It supplies certainty for hope and uncertainty.
Automobile insurance.—The first policy which approached the modern broad form of automobile insurance was probably issued by the Boston Insurance Company of Boston in 1902. This type of insurance covers the following:
1. Fire or explosion.
The immense growth of the automobile industry, coupled with the fact that, without such insurance, heavy damages might occasionally be collected from an automobile owner in case of accident, has made this branch of insurance a very important one in the casualty list. As there are no indications that the automobile will decrease in favor, it may reasonably be supposed that there will be a large increase in automobile insurance. It is a protection which one certainly cannot afford to be without if he owns a car or is in any way responsible for the running of one. Hence, every car turned out automatically increases the field for this modern form of insurance.
281. Title insurance.—Title insurance, the returns for which were noted in the statistical information given in the early chapters, states in its very name what it aims to do. Its purpose is to insure against defective titles. Along with it there has developed what is known as the mortgage loan guaranty. As the companies naturally have a close connection with the lending parties, they have developed the practice of guaranteeing the mortgages which are issued through them. The business has been aided very largely by the fact that the lender of money generally asks for a title guarantee policy before he will authorize a loan on real estate. The business has also been aided by the somewhat archaic methods which are in force in connection with real estate transactions. It is not reasonable to suppose that the civilized world will continue to make the transfer of real estate such a cumbersome process in the future as it has been in the past centuries. The system of title registration under Torrens laws, or something similar, will probably be developed in time so as entirely to remove the clouds which now hang over certain titles so frequently as to make a title insurance policy desirable in all cases. In other words, the transfer of real estate will in time be reduced to as simple a business as a transaction in stocks and bonds. This, of course, will take years of growth and education and there will still be a need for companies to handle matters of title insurance and also, perhaps, to guarantee mortgages. This type of insurance, in any event, is one which, with the development of civilization, we may expect to grow less rather than more. However, it has served, and is serving, an extremely useful purpose.
Burglary insurance.—At first glance burglary insurance might seem like an impossibility. How can one possibly forecast what loss there will be or know what rate to charge for such a type of risk? As a matter of fact, what holds this type of insurance within. the realm of possibility is the form of loss. The provision contained in the policies reads as follows: "Felonious abstraction of the insured article was accomplished by an entrance into the premises effected by the use of tools or explosives, and unless there are visible marks upon the premises made by the tools or explosives of the actual force and violence" the company is not responsible for the loss. It is evident, of course, that the necessity of showing some visible mark is a great deterrent to a false claim, and this has made the business possible, and probably it would not have been possible if this had not been a provision of the insurance.
One type of burglary insurance covers theft or larceny by servants or other persons in the house, by a guest, by sneak-thieves or outsiders. It covers a traveler, his personal effects at his hotel or while in the possession of a common carrier. It covers valuables which may be entrusted to a messenger for delivery. It covers the merchant against such losses by his employes; it covers the clerk who may be sent to the bank to secure the money for a payroll while it is in transit between the bank and the place of business, or where the disbursement will take place. Moral hazard enters, of course, but so it does in all forms of insurance, and perhaps after all it is not greater in this type than in many others. Banks, naturally, are covered by a special form of this type of insurance, bank burglary being rather a special type of crime. It is not of much moment in the city banks, but outside the metropolitan centres it is a form of insurance of primary importance. The cover in this case is against : (1) the ordinary breaking, and entering, and stealing; (2) the form of robbery known as the "hold-up"; and (3) damage to the property caused by the attempt to break into the vaults by means of tools or explosives, and finally against robbery of the messenger of the bank when he is engaged outside of the bank.
Burglary insurance seems to have originated in the United States about 1885, but now it has developed so that many companies are writing it as one of their regular lines. In England, strangely enough, it has apparently attained a greater prominence than in this country, the number of companies engaged in the business or the companies writing this line being about four times as many as those in the United States. The premiums in the United States now amount to about $3,000,000 per year.
Surety and fidelity insurance.—There are few types of business in the world older than that of going sponsor for somebody in a transaction. As far back, apparently, as we can go in commercial relations, we find that some person undertaking a given piece of work was called upon to furnish security or surety through having himself guaranteed by another person. Such forms of insurance come into play in cases where the undertaking upon which one is entering is of so serious a nature that failure of the party to perform the work would mean an exceedingly substantial loss. In such cases the task whose performance is guaranteed is not something which can be done over again without any material loss; on the contrary, if the party fails it may mean a total loss of the sum invested and call for larger sums to restore the actual condition existing before the contract was entered upon.
Field covered.—For centuries this form of security was furnished by individuals. It has now developed into a very specific type of insurance, some companies risk is one on which it would seem we might have fairly accurate statistics ; as a matter of fact, however, these remain to be gathered ; insurance cannot be offered upon them until we do have such figures. The work has been undertaken by some countries, notably Great Britain, and the following report is suggestive:
The report for the first year of the operation of the Unemployment Insurance Law under which provision is made during periods of unemployment and illness for the great body of employes in the United Kingdom shows that 2,508,939 unemployment books were issued; 559,021 claims for benefit were filed; 400,000 individual working men claimed benefits under the act; 774,494 payments were made ; the total benefits paid aggregated $1,150,722; the lowest payment for any one week was $23,359 and the highest $93,436; the year's gross income amounted to $11,039,168; at the close of the year there was an invested balance of $7,835,065; the maximum of unemployment falling within the provisions of the act was 118,000; and the minimum 67,000.
Of the total annual income derived under the insurance act, the employers and workmen contributed about three-quarters and the State one-quarter. In a large proportion of cases the unemployment was very short, 30 per cent falling within the waiting week during which no claim could be made, 62 per cent received benefits, while 7 per cent was excluded for various reasons, and 1 per cent represented unemployment which continued after the period during which benefits are paid.
It is stated that the report is only preliminary in certain respects, as some of the figures have not been fully analyzed. It is to be noted also that while the insurance law has been in operation for a year, there has been only six months experience of the payment of unemployment benefits.
Vacation insurance.—In many respects insurance, or the principle, is probably in its infancy. In 1913, as illustration of this, the following, known as Vacation Insurance, was put forth at Lloyds, London:
Insurance of one's vacation against the hazards of rain may now be effected through London Lloyds, according to a cable dispatch to the New York Tribune. You may insure your vacation by the day or by the week, and in varying sums. The only stipulation is that a quarter of an inch of rain must fall before the loss is paid. It does not matter at what hour this rain falls. You may insure for one day, and the rain may fall within that part of the twenty-four hours that you spend in sleep, and the weather may be clear in the daylight hours. You get paid. In the same fashion, if you insure for a week and rain falls on three days, you get paid. You receive no payment if it rains only two days in the week. The premiums vary in size. For 60 cents the amount of the weekly insurance is $10; a premium of $1.25 pays for a policy of $60; $5 brings you $80 if it rains three days in the week. The daily insurance costs about twice as much as the weekly, being one-eighth of the amount of the policy.
War insurance.--The war in Europe in 1914 brought out the fact that the ocean-going trade merchants' service was apparently not equipped on the insurance side to carry the war risk. The governments promptly came to the rescue in the United States, Great Britain, France, Belgium, Italy and others, and assumed this risk. This left marine insurance on the following basis, namely: to take care of all the ordinary losses covered by the marine policy, the government picking up the losses occasioned by war. This was a development of the principle of insurance whereby private enterprises carried a certain part of the bur-den, the government stepping in and carrying the other part.
Other applications of the insurance principle. The several examples given in this chapter merely show the possibilities that may exist in the use of the principle of insurance to avoid loss. The principle of insurance is used by the world in many ways which are not recognized as such. What, for instance, does insurance attempt to do? It attempts to distribute a loss or to make provision that the loss will be a small one to any given individual, to spread it, in other words, over so many that there will be no substantial suffering because of the disaster. We have already called attention to the practice in stores of having one person, the clerk, sell the goods and another, the cashier, collect the payment. This system makes use of the insurance principle by dividing the risk of loss between two parties. Thus, there would have to be collusion before the store-keeper could lose. There is less likelihood of there being collusion than of an individual clerk tampering with the receipts. Whenever, therefore, a risk is divided between two or more persons, whether it be by means of an insurance policy or in some other way, the principle of insurance comes into play. With the development of business relations, there should be many new uses for this principle of insurance.