stated than by Mr. Powell Evans, of Philadelphia, one of the leading
business men of the country, who spoke before this Congress in its first
session, in May, 1908. In a recent magazine article, Mr. Evans says:
Fire waste in the United States and Canada is about ten times
that of western Europe. It averages broadly $250,000,000
yearly with $150,000,000 added expense for protective measures
imperatively demanded by this great, continuous, and increasing
loss.
The 1910 fire waste would pay the total interest-bearing debt
of the country in four years; or would build the Panama Canal
in less than two years. In other terms, it exceeds the combined
cost of the United States Army and Navy and the interest on the
National debt; or nearly equals the combined annual failure and
pension payments in the United States; or exceeds the combined
United States gold and silver production and Post Office
Department receipts—these all annual figures.
It represents about 40 per cent of either the total unused
United States government receipts or total expenditures, or the
net earnings of American railways; it represents about 80 per
cent of either the United States Internal Revenue receipts or
the United States Customs or the interest paid on the railways
in the country. It exceeds the combined annual value of wheat,
hay, oats, and rye crops, and is twice that of the cotton crop.
It costs about $30,000 for each hour in the Year, or $500 for
each minute. It costs, moreover, more than 1,500 lives and
5,000 serious injuries annually.
If all buildings burned last year in the United States were
placed together on both sides of a street, they would make
an avenue of desolation reaching from Chicago to New York,
and although one seriously injured person were rescued every
thousand feet, at every three-quarters of a mile a man, woman,
or child would nevertheless be found burned to death.
This fire loss averages three dollars per capita in America
each year as against thirty cents in Europe. It is absolute
loss, and not ever transferrence of value. It positively does
no good to anyone. About two-thirds of this waste in life and
property in this country could easily be avoided by means
similar to those employed in western Europe, where the loss is
about one-tenth of ours.
INSURANCE COMPANIES IN CONTROL.
Let me now tax your attention with a consideration a little more in
detail of the part played by the insurance system and the rate in the
fire waste of the country.
By common consent the control of fire has been left almost entirely
to the care of the fire insurance company. The average man considers
that the company pays the loss and suffers loss in the payment. In his
opinion the company is impelled by fear of loss to exact a high state
of efficiency from all engaged in stopping loss, and that it is also in
position to know what ought to be done at any time to prevent loss or
strengthen the forces that fight fire. From the point of view of the
average man, to pay the insurance premium is to discharge his whole duty
as a citizen. All else is a detail of the business of fire insurance and
none of his business.
The prevalence of this conception of the interest of the fire insurance
company explains the apathy of the public and prominence of the company
in all questions of public safety against fire. Nevertheless, it is a
misconception, and until the public bestirs itself in its own behalf,
fire waste will never be subdued. While the company pays the loss,
payment is made out of a fund taken from the public in advance. This
premium fund covers not only the loss but about as much more in addition
for the use and profit of the company. Up to the limit of price that the
public will stand for, the higher the losses, the more the premiums and
profits to be collected by the company. Thus the doubling of the loss,
in the face of a ten-year campaign for reduction led by underwriters, is
not the reflection on the leadership that it seems. If losses doubled, so
also did premiums and profits.
The actual control of the situation lies with the insurance rate.
However, the companies may protest and exhort, little will be doing
unless their admonitions find concrete embodiment in the rate. It was
the rate that doubled premiums during the last ten years, and it was the
rate which maintained the conditions of risk implicated in doubling the
losses. It is axiomatic that premiums cannot be doubled unless losses
double, and that losses will not double unless there is hazard to produce
them. A true rate could have been promulgated ten years ago, which would
have sent much hazard to the discard as no longer profitable and much of
the subsequent loss would not have transpired. But premiums would have
suffered a like shrinkage.
Mr. Evans’ address before the first Conservation Congress, to which I
have already referred, became the basis of an official utterance by the
National Board of Underwriters, and the public therefore must regard him
as a creditable witness.
INSURANCE RATES.
Here is what he says of the part of the insurance companies and insurance
rates in this great national calamity:
The world’s insurance bill is the measure of its fire waste. In
the United States insurance costs, on the average, about 1 per
cent of the policy value or one dollar per one hundred, with
three dollars per capita fire waste; whereas, in western Europe
insurance costs on the average one-tenth of one per cent of the
policy value or ten cents per hundred, with thirty cents per
capita fire waste.
The sound rule follows that, as fire waste is reduced, the cost
of insurance automatically falls in proportion, and from this
cause only. Insurance is not a commodity in the usual term; it
is a tax which distributes the fire waste of the country over
its population. It is fundamentally a nation-wide average.
About one-half of all insurance premiums collected are returned
to the insured for fire losses, and the remaining one-half
goes for expense and profits in the insurance business. Unduly
numerous or large fires, or conflagrations, swell the total
waste bill, and automatically rates rise everywhere within
the national boundaries, until the half of all collections
is great enough to pay these losses. Every inhabitant of the
country contributes an average share of these insurance bills;
higher rents, clothing, and food bills; and through them higher
credit rates and interest on loans. No one can escape. In the
aggregate, it can safely be said that every workman pays this
three dollars yearly for every member of his family, through
either one or all of these channels.
The insurance interests have limited influence; no power other
than imposing a high rate; and are in a measure, because of
their own commercial interest, indifferent to present fire
waste. It would appear to the layman at first glance that less
fire waste would be welcome to the insurance business, yet
the insurance influence is far from making a united effort to
reduce it. So long as an insurance company does not have to pay
out more than fifty per cent of its premiums for fire loss the
unit profit is good. Therefore one-half of a high rate nets a
greater final profit than the same proportion of a low one.
Hence the automatic yard-stick rate schedule which companies
apply to any property, which totals up the final rate in each
case—having regard to the building, contents, and location
(exposure hazard). This might result in a premium as low as ten
cents on new mills, and stores (not contents); or as high as
ten dollars per one hundred dollars on Southern wood-working
mills. Many insurance managers actually prefer the higher rate
and risk as making higher possible earnings for the company
and permitting a higher absolute payment to the broker, thus
enabling the manager to produce a larger net annual profit, and
to interest and hold a better line of brokers through whom to
distribute his contracts of insurance.
The broker, who gets from ten per cent to thirty per cent of
the premium, objects even less to the higher rate—although,
as we have seen, it inevitably means higher risk and more
chance of fire, and in fact more fire waste; so the destruction
continues.
There’s a siamese twinship between premiums and losses that forbids
a knockout. Packing houses afford an apt illustration of the control
of the situation wielded by the insurance rate. Public attention was
attracted last winter by a large loss in the Chicago stockyards which was
accompanied by the death of many firemen. This loss involves a paradox
which few observed. Why should appliances which would have prevented
this loss and catastrophe be absent in the congested Chicago yards, and
yet present in similar outlying plants owned by the same men? No spot on
earth needs precaution against fire more than the Chicago stockyards, and
in none is there a more profitable opening for investment in the means of
safety.
SAFETY NOT SOUGHT FOR ITS OWN SAKE.
The answer lies in the fact that safety is not sought for its own sake by
the average business man. From the small dealer to the board of trustees
of a great university, no more is appropriated for safety against fire
than will pan out profit from the insurance rate. The rate makes safety
pay in the outlying packing house and makes hazard pay in Chicago, and
the packers are governed accordingly. Inquiry would probably develop that
competitive conditions made a reasonable rate possible in the locations
where the plants have been made safe, whereas, in the Chicago yards,
competition does not operate and the rate is made by a board having only
commissions at stake.
How is this rate, so loaded with import to life and property, made? This
question assumed prominence when regulation of rates was undertaken by
certain states. Inquiries conducted by these states show that rate-making
is neither what it purports to be nor what the public imagines. What it
purports to be is indicated by the title given to schedules promulgated
by associated insurance companies for the formation of rates throughout
the West, namely, an “Analytical System for the Measurement of Relative
Fire Hazard.” It is claimed to be a system of measurement. Something
scientific, accurate and just is indicated by this title. The public
accepts the schedule at the valuation fixed by the title, and believes
that back of its provisions is a great fund of digested information
bearing upon every angle of the problem. It suggests information
collected by the companies with infinite patience and given freely,
so that the making of rates might be done with exact justice to all,
charging to none the burden that rightfully should be borne by another.
What rate-making really is may be inferred from the inquiry of Missouri
as to the reasonableness of the important schedule filed under the rating
law of that state for the formation of rates for fireproof buildings and
contents. Some knowledge of premiums and losses in this class of property
is clearly essential for the making of reasonable rates.
[Illustration: Convention Hall, Kansas City, where the Third National
Conservation Congress was held]
WHAT WAS ASKED OF COMPANIES.
The companies were first asked by the Insurance Department of Missouri to
furnish their experience in fireproof buildings and contents. Companies
like the Aetna, Hartford, Home and Royal replied that they had never kept
a tabulation of this nature and were unable to furnish any information
which would show what premiums and losses might be expected from such
property. It was explained by these companies that it was their custom,
in keeping track of bakeries, for example, to class together those of
ordinary construction, improved construction and fireproof construction.
No useful information could be gleaned from such a source, and the
experts who prepared the schedule were called to the witness stand
and requested to justify their handiwork. It appeared on examination,
however, that the provisions of this schedule were prepared without one
iota of information showing what premiums and losses had been experienced
in this class of property. It was not known whether the rates formerly
used had proved unduly profitable or unprofitable, nor was it known with
certainty whether the new rates would increase or diminish the premium
charge as a whole.
All classes of property receive this arbitrary treatment. In none are
statistics kept to show whether the schedule is producing too much or too
little revenue in comparison with the losses. It is admitted that many
classes pay too much, while others are being carried at a loss, but no
schedule is made to rectify this abuse, although the schedule purports to
be a system of measurement.
The companies do not keep faith with the public. We are promised that
greater care to avoid fire will reduce the loss and lead to lower rates.
But the rating system is conducted so that the public will neither
know its just due nor receive it, except by resort to other forms of
insurance. When some organized industry undertakes self-insurance,
ratemakers soon find that conditions have improved and that reductions
are in order.
It is evident, however, that the end of this system of false measurement
is near. Four states are regulating rates under laws which call for
rates in reasonable relation to losses, and the sustaining of the
constitutionality of such regulation by the lower courts makes similar
legislation certain in practically all states. There is urgent need,
therefore, for accurate knowledge on all matters which affect the rate
of burning in the several classes of property. This knowledge does not
exist. It must be acquired by study of data yet to be gathered. The
data in the hands of the companies is worthless. It has been gathered
by plain business men engaged in the insurance business, and, whatever
the purpose of the compilation, it certainly has had no reference to the
formation of reasonable rates.
NEED FOR FEDERAL INVESTIGATION.
Faulty treatment, and not incurability, is indicated by the persistence
of the high level of destruction by fire in this country. The treatment
is vague and characterized by irresponsibility. Diagnosis is wholly
lacking; the location of the trouble is not known, and the remedies
are applied haphazard in ignorance of the possible effect. No person
connected with the treatment has a definite result to produce, or is even
asked to prove that any result has been produced. The premiums and losses
are reported in bulk to each state. The summation of these reports into
one huge total constitutes all that is done by the insurance company or
the insurance rater or the public to discover the workings of this great
waste.
Such blind methods can accomplish nothing. Risks must be enumerated.
Those in need of treatment must be singled out and something economically
appropriate be prescribed for each. To find out where and how effort can
be put forth to economic advantage—to define what can be done wisely
by the class and individual to reach the low economic level of loss—to
keep watch of results and register the efficiencies of fire alarms, fire
patrols, fire departments and fire resistants—these are details which
must be wrought out before fire waste can be attacked with definite aim
and for the perfecting of which the Federal investigation and bureau is
proposed.
The states appeal to the Federal Government to standardize the schedule
for the formation of rates so that it shall become a true measure of
the conditions to which it is applied. Leaving this measurement to the
dictates of the “best underwriting judgment” has proved a costly error
to the people. The underwriter escapes the common lot; the cost of his
“error,” with a substantial addition for his profit, is borne by the
people.
When the fog that envelops this waste shall become dispersed by the
Federal analysis, the way to its speedy removal will become clearly
visible to the individual states.
I lay no claim to originality in the presentation of this subject. I have
given you facts and for the most part the comparisons and expressions of
the experts who compiled these facts. They are original only in the sense
that the testimony of witnesses recited in a brief or argument in a trial
are original.
I have asked the assistance of the Congress of the United States to
secure an investigation of this important subject to the end that power
may be added to the arms of the states to restore natural conditions as
to fire losses in our modern business world.
President WALLACE—You will now hear the great highway engineer of
Missouri, Hon. Curtis Hill, on the subject of how good roads help the
farmer.
Mr. HILL—Mr. Chairman, Ladies and Gentlemen: There is no question but
that we have been making as much progress in road work during the last
few years as we have and as we are in other lines of work, and still
in many places we are not making the progress that we road-making
enthusiasts, and I might say road cranks, would like to see made. Still I
do not believe that we can now apply to our highways over the large part
of the Mississippi and Missouri valleys that little poem which, or a few
verses of which, Robert Burns is said to have written upon his arrival at
a little town in Scotland, illustrating that the highways of Scotland at
one time were not much better than they are today of Missouri, I might
say. Speaking of those highways, he left two verses, which run something
like this:
I am now arrived, thanks to the gods,
Over pathways rough and muddy;
A certain sign that making roads
Is not these people’s study.
And though I am not with Scripture crammed,
I am sure the Bible says
That you people shall be damned
Unless you mend your ways.
Now, how good roads help the farmer must always include others, and it
can be best discussed in a short discussion, in a general way under two
heads. First, transportation systems, and the importance of our social
conditions. Referring to Robert Burns in Scotland, you will see that the
road question has been hammered upon for years and years. Man has been
considering it as a means, and as one means of transportation. Now, in
fact man has been forever trying to overcome gravitation, from the first
load that a man carried on his back, or put upon the back of a pack
animal, he has been endeavoring to lighten his burdens by overcoming the
laws of gravitation. And so it has been through all history. The galley,
the sail boat, the steamship, automobile, and air-ship. The good roads
is one line in the endeavor to overcome the laws of gravitation and to
make easier one method of transportation. Transportation charges have
entered more into the cost of living than any other one item. Food,
clothing, building material, all the staple necessities of life have had
to pay the freight. The freight is deducted from or added to the price
of the article which forms the basis of the price which the producer
receives or the consumer pays. The man who produces the commodity, or
he who settles the bill, pays the freight. Neither the producer nor the
consumer has gained by a high cost of transportation. The question of
good roads is therefore at the present time one of the most vital with
which we have to deal. There is no one internal improvement so absolutely
necessary and essential to a state’s progress and prosperity as the
betterment of the highways. (Applause) Good highways are necessary
to a state’s progress and prosperity, as well as that of a community,
because they involve the transportation problem. With transportation is
involved the problem of life, the cost and pleasures of living, exchange
of commodities, valuation of property and the social and moral and
educational conditions. The problem of life is a study closely linked
with the problem of transportation.
Our very existence as a social and commercial body as a state is
dependent upon transportation to such an extent that without easy, quick
and economic means of transportation we must rank as a second, third
or fourth class state. The greatest assets of the most substantial
nations are transportation and agriculture, neither one of which can be
fully developed without the other. The transportation of the bulk of
agricultural shipments begins at the farm when the raw material is hauled
over the country roads. This country road is the farmer’s own road, which
leads to the collecting points of transportation by rail and water, and
over which he reaches his market. It is used one hundred times to every
other time for all other means of transportation. The good road permits
the farmer to watch his markets and not the road. Many a farmer markets
his grain at harvest time because it is a season of good roads, at a less
price than he would by storing the grain until the markets are better
and less glutted, and when he would have more leisure time for hauling
it to the market. The good road permits him to haul double the load that
he would over a poor one, and he is thus enabled to move his crop in
one-half the time. This, figuratively speaking, picks up the producer
and sets him down one-half the distance closer to his market. You all
know that distance in this age is measured in time and not in miles. The
country road is the people’s own road, their own means of transportation,
and it is the only transportation system that is owned, operated and
controlled by the people themselves.
It is at the same time the most neglected system of transportation
in the United States, and the most expensive over which to transport
our produce, owing largely to this neglect. Many a pound of freight
originating upon a farm, or destined to a farm, moves over a common
country road at a cost three times as high as it would be if the road
were first class. Often the haul between the farm and the railroad
costs more than the remainder of the journey, and the railroad or any
other means of rail transportation cannot be expected to reach every
man’s farm, and it becomes necessary to provide means for transporting
the commodities to the railroad. The wagon road then becomes a system
of transportation, just as a line of boats or a railroad is a system
of transportation. Water and rail are the means for long distance
transportation; highways for local exchange. The highway serves the
purpose for local transportation, and is a connecting link for local
traffic with the railroads. The condition of this connecting link or
highway may make transportation reasonable or costly. Too frequently,
as I said before, the haul over the highway is the most expensive part
of farm transportation. It requires a tractive force of 125 pounds per
ton upon an ordinary country earth road, and only sixty pounds upon a
rock road. The cost of transportation by water and rail seldom exceeds
one cent per ton mile. That upon a good road is from seven to ten cents
per ton mile. Upon our ordinary country highway, half kept roads, it
is from twenty cents up to anything, depending upon the condition of
the road. The railroad will haul a bushel of your grain thirty miles as
cheaply as the farmer can bring it one mile. If the farmer is situated a
few miles out of town on poor roads, the railroads will haul the produce
and the commodities to cities like Kansas City rather, and the return
merchandise from that city as cheaply as the farmer can haul it to and
from the railroad and to the farm. Now this high cost of transportation
can be decreased by increasing the size of the load. This can be done
by improving the road surface. The high cost of transportation is not
altogether due to the railroad. Good wagon roads are just as important a
factor in the reduction of this high cost of transportation as are low
rates by water or rail.