| In 1882 | £696,715,141 |
| 1886 | 741,109,316 |
| 1890 | 806,131,385 |
| 1895 | 858,899,409 |
| 1900 | 963,291,097 |
| 1905 | 1,034,819,587 |
It appears probable that the rate of increase here shown is not greater than the actual growth of insurable property during the same period, so that it may be reasonably supposed that the custom of protecting all exposed property by insurance was already general in London many years ago. But the transactions of the British fire offices have grown much more rapidly, and indicate that, outside of the metropolitan district, the practice of insurance has extended greatly. The returns show that there is a tendency to concentrate the business in the control of large capital and experience, for practically all the premiums received and losses paid were shared by thirty-one companies, although there are at the same time a greater number of corporations of foreign countries with agencies for fire insurance in the United Kingdom; but many of these do but a nominal amount of business, and twenty-three of them are exclusively or chiefly engaged in re-insurance. This tendency has been a marked feature in the later history of fire insurance everywhere. The companies which are now in the field are the survivors of tenfold as many projected enterprises which have failed. The records of about two thousand organizations for the purpose, in America alone, which have undertaken the work and disappeared within fifty years, show the dangers to which inadequate skill and capital are exposed. But a small proportion of these failures were the direct result of sweeping disasters, though about seventy of them followed the memorable fires in Chicago and Boston in 1871 and 1872. Many more, nearly one-half of the whole, have followed a short career, in which the helplessness of inexperience to compete with long training and complete organization was demonstrated. Many hundreds of these projects were mere speculations or even frauds from the beginning; and the better education of the community at large in the principles and methods of insurance has been the chief agent in checking such enterprises, aided by the stringent legislation of several countries and of the United States in America and by the criticism of the press.
The difficulty of establishing a new joint-stock fire insurance company is far greater in the present highly perfected state of the business than formerly, and constantly increases. The reports of the state insurance departments in America show that less than one-eighth of the premiums are now collected by companies founded since 1880; and, except in districts remote from the principal financial centres, or mutual associations for special classes of hazards, new companies are not often formed. In Great Britain a considerable number of new corporations are registered every year, with fire insurance among their professed objects, but almost always in connexion with some forms of casualty insurance, which appear to be practically the purpose in view. The reports of the fire business in the United Kingdom for recent years, as collected in Bourne’s Manual, show that less than one-fourteenth of it is done by companies organized since 1870. Though new companies have been registered, usually several every year, the number actually transacting successful business has not increased since 1880. Of the various British companies now recognized, the twelve smallest together collect but 1% of the premiums received by one of the largest, and the tendency to concentrate the business seems progressive. These facts are explained by the necessity of a vast basis of average and of a large capital for security, and still more by the increasing demand for a thoroughly trained and organized body of agents, able to protect their companies from fraud and imposition, and at the same time to compete for public patronage.
The Mutual principle has a strong attraction for many insurers and projectors. When a large number of pieces of property, so distributed that a single fire cannot destroy a considerable proportion of the whole, are yet owned Mutual system. and controlled by persons who can fully trust one another, both for financial responsibility and for good faith, there may be no need of a large capital in hand, nor of much of the costly machinery required for general competition. A contract for the assessment on all the property of losses as they occur, at rates fixed by the estimated exposure, may form a safe basis for an association. The fixed payments may be limited to necessary expenses, with a moderate reserve for emergencies, all excess of collections to be returned to the insured. This simple conception of an insurance association, with such modifications as experience indicates, has been accepted for a time as ideal in almost every civilized community, and attempts are continually made to realize it, but in the vast majority of instances with complete failure as the result. Like every other product of human skill, insurance is, for the most part, best supplied to the market by those who make it their calling to produce it for gain. But while the mutual plan has proved poorly adapted to the general service of the commercial world, in some communities, and especially among the owners of certain classes of property, it has achieved great and apparently permanent success. This is particularly true of manufacturing districts, in which numbers of mills and factories are exposed to peculiar danger of fire by the nature of their own operations. The best safeguard they can have is by employing great skill in the construction, arrangement and conduct of their works. A group of such properties, associated for the prevention of loss, is naturally stimulated to highest efficiency when the whole group undertakes to bear all losses which are not prevented, and thus every member has a strong interest in making the protection complete. It is in associations of this character that the mutual plan of fire insurance has rendered its greatest services. The mutual plan has been widely adopted also in local associations for the insurance of dwellings and farm improvements, where the individual risks are small, and where technical classification and special safeguards against fraud are not considered necessary, often with the result of affording satisfactory protection at low rates. But the ratio of this part of the business to that conducted by joint-stock companies diminishes from year to year, even in the agricultural and rural districts of the United States. According to the reports of the insurance departments of the states, as summarized in the Spectator Company’s Year-Book, more than half of the cash premiums of mutual insurance companies are collected in the two manufacturing states of Massachusetts and Rhode Island.
It is, after all, only within a very limited field that the mutual principle can be adopted. The essential principle of fire insurance is the distribution of loss. It does not aim, directly at least, at the prevention and only in a secondary way even at the minimizing of loss; but what it seeks to accomplish is that such losses shall not fall exclusively, and possibly with overwhelming effect, on the owner of the property destroyed, but shall be borne in easy proportions by a large number of persons who are all alike exposed to the risk of a similar catastrophe. To work out the equitable solution of such a problem an amount of technical skill and extended experience is required which few bodies or communities possess. Certainly, experience in Great Britain has shown that the one system of fire insurance which has contributed most to the public benefit is that which is conducted by joint-stock companies, offering to the insured the guarantee of their capital and other funds, and looking to make a profit by the business. In France, Belgium, Holland, Russia and Norway, also, the joint-stock plan is almost exclusively employed.
Such an opinion must be qualified by observing that, under the fostering influence of the national and municipal governments, the mutual plan has reached an important development in Austria-Hungary, Germany, Switzerland and Sweden. In all these countries, indeed, corporate enterprise on a large scale, in every branch of business, is of comparatively late growth, and mutual fire insurance was a familiar practice long before joint-stock companies entered upon this field of activity. The tendency in the large cities and commercial centres is to throw new insurances into the business corporations, while the time-honoured mutual associations retain their standard character and customary clientage. But in these countries the mutual plan has an established place in the confidence of the rural population, who are generally strongly prejudiced against moneyed corporations. This is especially true of the cantons in Switzerland and certain districts in Austria-Hungary, where fire insurance is administered by the local governments in connexion with a minute police supervision of the construction of buildings and of other conditions affecting the risk. From the published returns of the companies and the authorities, as collected for the Post Magazine Almanack (1900), it would appear that of all the fire insurance premiums paid in Switzerland nearly 54% is collected by the mutual associations and the cantonal authorities; while in Italy 37%, in Germany 27%, in Sweden 27% and in the Austro-Hungarian monarchy 20% go to mutual companies.
The earliest plan of insurance which was successful as a business was that practised at Lloyd’s Coffee-house (see [Lloyd’s]) in London, and there applied almost exclusively to marine risks. Although the association known as Lloyd’s. Lloyd’s has been for generations a strong financial institution, with every modern safeguard, and since 1871 has been a chartered corporation with large funds, yet its name has become accepted as the symbol of the primitive practice of combined underwriting by individuals, each upon his own credit, for a share of the risk and without common liability.
A few associations on this general principle were known to exist in America, and to issue fire policies on a small scale, before 1892, but chiefly for mutual insurance. In that year, in a general revision of the insurance law of New York, such associations already in existence were expressly exempted from all its provisions. Speculators at once discerned an opportunity. If a company by omitting to take corporate form could carry on the business free from all restrictions and burden of state supervision, it would compete at great advantage with the insurance corporations. While the new law was in prospect there was time to take action; and upon its passage there suddenly appeared a multitude of “organizations” claiming the exemption as Lloyd’s, or associations of individual underwriters, and offering fire policies at rates materially lower than those of the joint-stock companies. Each of these was represented and managed by an attorney for the subscribers, supposed to have power to bind them severally to the amount of their subscriptions. The standard policy prescribed by law in New York was issued, with a clause making the liability several only, and fixing the amount. The Lloyd’s entered the market with the zeal and prestige of a new idea and a great name, and they grew rapidly in number and in business, but made no reports. Extending their agencies into other states, they occasioned much litigation concerning their legal existence and rights and some rash and inharmonious legislation. But several attempts to establish similar Lloyd’s in other places failed. Experience soon showed that it was impossible to enforce claims in the courts, when the liability was distributed among many, without excessive expense and delay, even when all the subscribers were solvent, while a few good names, however useful in canvassing, were no guarantee of the responsibility of unknown associates. In 1896 the executive and legal authorities of New York assumed a hostile attitude towards speculative schemes of this class, and indictments were found against a number of promoters for falsely antedating constituent agreements. The bubble burst suddenly, and within three years more than one hundred of the Lloyd’s disappeared. A few reinsured their risks or were merged in permanent companies, but the mass of them proved to have no substance. Four or five only of the best Lloyd’s continue to issue fire policies within a narrow and special circle, but as a group they no longer compete for general business.
The rate of premium varies with the supposed risk, but certain descriptions of property are specially and more elaborately rated. This has been done to a considerable extent by common agreement amongst the offices, and the arrangements are known as the “tariff system,” which requires here a few words of explanation.
We may suppose the question to arise, What ought to be paid for insuring a cotton-mill, or a flax or woollen mill, or a weaving factory, or a wharf or warehouse in some large city? The experience of any one office scarcely affords adequate data, and a rate based on the combined experience of many offices has a greater chance of being at once safe and fair. The problem, indeed, is a more complicated one than what has been already said would indicate. The property to be insured may consist of several distinct buildings and the contents of them: one building may be devoted to operations involving in a high degree the risk of fire; in another the processes carried on may be more simple and safe; a third may be used only for the storage of materials having little tendency to burn. Fairly to measure these various hazards it has been found necessary that the experience and skill at the command of many companies shall be combined, and that the rates shall be the result of consultation and a common understanding.