UC-NRLF 
 
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Transactions of the 
 
 Insurance and Actuarial Society 
 
 of Glasgow No. 12. 
 
 Session 1883-84. 
 
 Competition for President's Prize. 
 
 Prize Essay- 
 
 The Economical Aspects of Fire and Life 
 Insurance at the Present Day. 
 
 By 
 
 James Gemmell, 
 
 Scottis- iid National Insurance Company, (. 
 
 March, 1884. 
 
 Printed for the Society by 
 
 Robert Anderson, 22 Ann Street, Glasgow, 
 
 and Published by 
 
 Charles & Edwin Layton, Farringdon St., E.G.. London. 
 
 1884. 
 
 rice One Shilling. 
 
 Entered at Stationers' Hall. 
 
LIBRARY OF THE SOCIETY. 
 
 IT will be one of the first objects of the Society to provide, for 
 the use of Members, a Library of "Works on professional sub- 
 jects, embracing those connected with the theory and practice of 
 Insurance in all its branches, with the theory and practice of 
 Calculation, with Statistics and Finance. 
 
 As little can be expected, in this connection, from the funds of 
 the Society, the Committee of Management look to combination 
 on the part of individual Members to secure this most desirable 
 object. 
 
 The Committee will be happy to receive donations of books 
 or pamphlets for the Library, on any of the above or kindred 
 subjects. These may be sent to the Secretary, or to any Member 
 of Committee, and will be acknowledged in the Minutes of the 
 Society. 
 
Transactions of the Insurance and Actwariat Society 
 of Glasgow. No. 12. 
 
 SESSION 1883-84. 
 
 COMPETITION FOR PRESIDENT'S PRIZE. 
 
 PRIZE ESSAY^- 
 
 THE ECONOMICAL ASPECT 
 
 OF 
 
 FIEE AND LIFE INSURANCE 
 AT THE PKESENT DAY. 
 
 JAMES G EMM ELL, 
 
 M 
 
 Scottish Union and National Insurance Company, Glasgow. 
 
 MARCH, 1884. 
 
 [ENTERED AT STATIONERS' HALL.] 
 
THE ECONOMICAL ASPECTS OF EIRE AND LIFE 
 INSURANCE AT THE PRESENT DAY. 
 
 INSURANCE is a contract between two parties, whereby the one 
 called the "Assurer" undertakes for a sum or sums, under certain 
 conditions and restrictions, to " make sure " the other, known as the 
 " Assured," against stipulated events, either certain or contingent. 
 
 The application of Insurance is capable of great extension, and 
 already the term implies protection from a numerous variety of 
 risks, the principal of which are Fire, Life, Marine, Accident, 
 Plate Glass, Steam Boiler, and Employers' Liability Insurances. 
 
 The fundamental principles of Insurance are based on the 
 doctrine of probabilities. In Insurance against loss by Fire it is 
 calculated that certain losses will be incurred in an extended area 
 of property in a given time, and in Life Assurance that of a 
 number of persons assured a certain proportion of deaths will 
 probably occur in a limited period. Students of the history of 
 Insurance find no direct evidence of its practice by the ancients. 
 There is no mention of any system of Insurance in the Roman 
 laws so far as they have been preserved. In the Code of the 
 Twelve Tables the crime of arson is dealt with, and it is interest- 
 ing to note that the punishment for that offence was the severe 
 one of death by fire, afterwards modified to " Aquce et Ignis 
 Interdictio^ equal to the forfeiture of the rights of citizenship. 
 
 The history of Fire Insurance in Britain does not carry us 
 further back than the end of the seventeenth century, and the 
 events which occurred immediately prior to the formation of a 
 regulated system seem to have had an important bearing upon the 
 inception of Fire Insurance. 
 
 The year 1665 is memorable by the terrible plague which robbed 
 London of 100,000 of her inhabitants. The following year, 1666, 
 earned from Drydeii the title of Annus Mirabilis (the " Year of 
 Wonders"), principally by the great fire which occurred in the 
 Metropolis and devoured 400 streets and 13,000 houses. The 
 disaster has been' commemorated by the erection of that majestic 
 column familiarly known as the " Monument," which at one 
 period bore an inscription falsely ascribing the origin of the fire 
 to religious fanaticism. The obnoxious inscription was erased in 
 1831, and Pope's famous couplet, 
 
 " Where London Column, pointing to the skies, 
 Like a tall bully, lifts its head and lies," 
 
 285899 
 
J.U1 
 
 OC( 
 
 234 
 
 is 'now inapplicable. The fire was not an unalloyed calamity, as 
 it must have burned out the dregs of the plague and demonstrated 
 the necessity of devising means whereby the ruinous effects of 
 such evils might be alleviated. 
 
 Several years, however, elapsed before Fire Insurance could be 
 ranked as an institution; but the great advantages of the system 
 being readily understood, its popularity was speedily assured. 
 
 Prior to this, sufferers from fire became objects of public charity, 
 and subscriptions in the shape of " King's-briefs " and other 
 benevolent contributions from the communities in which fires 
 occurred were the usual methods of assisting the unfortunate. 
 The practice of Fire Insurance does not appear to have required 
 the special permission of the State at any period, although such 
 might be inferred from the monopolies granted by the Crown 
 under James II. and other rulers. Certificates of Incorporation 
 were freely granted by Parliament, which conferred certain privi- 
 leges upon the shareholders, such as extent of liability, power to 
 sue, and to invest money in lands and heritages. These Charters 
 have now been superseded by the "Joint Stock Companies Acts," 
 which form a more convenient and less expensive vehicle for the 
 formation of corporate bodies. 
 
 Fire Insurance as a means of taxation has from time to time 
 occupied the attention of the State. In the year 1694, during the 
 reign of William and Mary, a stamp duty of 6d. was levied on 
 each 100 insured. The duty afterwards varied, reaching as 
 high as 2s. 4d. in 1711, and 3s. ICfd. in 1713. In 1765 the duty 
 was 2s. 6d. for policies issued in London, and 5s. for those issued 
 in the provinces. 
 
 In 1782 the attention of Lord North was directed to the large 
 amount of business transacted by Insurance Companies, and he 
 induced Parliament to impose a tax of Is. 6cl. per cent, on the 
 amount of property insured, subsequent exceptions being made in 
 favour of Public Hospitals, Workhouses, Agricultural Produce, 
 Workmen's Tools, etc. From the " Town and Country Almanac " 
 (Edinburgh) for the year 1788 we find the following under the 
 head of Stamp Duties " Policies of Assurance on any article 
 whatever not exceeding 1000 must be written on a Stamped 
 Sheet of 5s. If 1000 or above, 10s.; and upon houses and goods 
 insured from fire, Is. 6d. for every 100 also to be paid." The 
 duty was not imposed in Ireland till 1786, and was charged for 
 many years at a lower rate than in England and Scotland. The 
 
tax continued, with variations in the percentage and method of 
 application, up till its withdrawal in 1869, when the charge was 
 Is. 6d. per cent. An ingenious device for partly evading the duty 
 was carried on for a number of years by insuring property in 
 cumulo, charging premiums equal in amount to the aggregate of 
 the several premiums which would have been payable by separate 
 insurances. This plan was defeated by the passing of an Act 
 whereby such insurances were declared illegal, unless what is 
 known as the " Average Clause " was inserted. 
 
 Judging from the repeated and persistent representations made 
 to Government on the subject, the impost seems always to have 
 been unpopular, the argument against it being that it formed 
 a hindrance to the development of a useful and benevolent 
 institution. It is generally understood, and it is natural to 
 conclude, that the removal of the tax gave a great impetus to Fire 
 Insurance, but it is on public record that with several Companies 
 no increase of business beyond the natural growth was experienced 
 at periods when the duty was reduced. 
 
 Fire Insurance in Britain is usually carried on through the 
 medium of Companies having large subscribed or paid-up Capital 
 and Reserve Funds, which are offered as security for losses up to 
 the sums assured. The primitive ideas on the subject of Fire 
 Insurance included payment of a percentage of losses only, 
 insurance confined to ground rent or buildings, perpetual in- 
 surances, and restriction of the area of property covered to 
 London. Premiums were regulated according to the sums insured, 
 that is to say, a policy for 1000 cost more in proportion than 
 one for 500 on same risk. Valued policies do not seem to have 
 been issued at any period. 
 
 The Contract, as we are all aware, is entered into by means of a 
 stamped document called a Policy, in. which are stated the names 
 of Assurer and Assured, the property covered, the extent and 
 conditions of liability, and the money consideration, called the 
 premium the latter of which is regulated by the risk, such as 
 construction and position of buildings and nature of occupancy. 
 
 Fire Insurance is not generally compulsory on the individual, 
 unless under a legal obligation to insure granted to a second party 
 who may have a claim upon the property. An exception to this 
 is found in the city of Hamburg and several small Continental 
 States, where an Insurance rate is levied, and private houses are 
 insured by the community, but merchants and tradesmen are left 
 
to their own discretion as to insuring their goods. Policyholders 
 in the United Kingdom have always had an important advantage 
 over their Continental neighbours in regard to the Average 
 Clause. This Clause, which is inserted only in " average " or 
 "floating" policies, as distinguished from the ordinary specified 
 policy, bears that the Assurer shall be held liable only to such a 
 share of the loss as the sum assured may have borne to the value 
 of the whole property covered at the time of a fire. In France, 
 Germany, Russia, and other countries, this clause is adopted in all 
 Fire Insurance Contracts. In this country its practice is mostly 
 confined to goods lying in different places, the policy covering the 
 whole in one sum. In ordinary or specified policies the Assured 
 receives indemnity up to the full sum in the policy, and is not 
 held a co-Insurer for the difference over that sum. The arguments 
 in favour of the clause are both weighty and numerous, and the 
 principal reason against it appears to be that where very large stocks 
 are held, the owners might experience a difficulty in securing full 
 protection, as they would be unable to insure for the total amount. 
 The universal adoption of the Average Clause would result in the 
 transaction of a large amount of additional insurances, but would 
 have the effect of reducing current rates of premium. Some years 
 ago certain French Fire Insurance Offices offered to take risks in 
 this country at half-rates, but stipulated for insertion of the clause. 
 The offer was not accepted. 
 
 The rates of premium charged for common risks have not 
 sensibly altered for the long period of a century and a half, but 
 much has been done towards the classification of risks, the effects 
 of which on the rates we shall have occasion to examine in another 
 part of this paper. 
 
 Commerce is connected with all spheres of enterprise, and with 
 none more closely than Fire Insurance, which may be termed the 
 Giiardian__of Commerce. As an exchange value it forms part of 
 wealth. It is a specific item in the regulation of values from the 
 prime cost of production to the price paid by the Consumer. By 
 the Grower of Wool, the Merchant, the Manufacturer, the Ware- 
 houseman, and the Retailer, the cost of Insurance is considered in 
 the same way as outlay upon labour and rent. An example of 
 the extended relations of Fire Insurance to some articles of 
 commerce may be found in a piece of woollen rag. The con- 
 nection of the principal item of its constitution may be traced 
 from its origin as value under live stock down to its present 
 
237 
 
 state. It has always been, and may continue to be, an ins arable 
 subject. 
 
 The sound economy of insuring against losses by fire is so well 
 understood that its practice is now general, if not universal, and 
 the best argument that can be advanced in its favour is that it 
 has no detractors in principle. Accepted as a necessity to the 
 most important material interests of the community, its develop- 
 ment is concurrent with the accumulation of wealth, and with 
 commercial prosperity. It extends to the individual an hid enmity 
 for loss which cannot be given by nature. As a security, it gives 
 confidence to the trader in his business relations. Guarded by its 
 practice from the possible ruin not only of himself but of his 
 creditors, the prudent and reflective member of a commercial 
 community recognises the obligation resting upon him to insure, 
 and that in doing so he is only fulfilling one of the most important 
 functions of business integrity, morally a man may risk his all 
 against loss by fire, but no more. 
 
 Fires, in the economical sense of the term, are unproductive 
 consumpts mere wastes and losses occasioned by fire are so 
 much wealth irreparably withdrawn from the world. It is a 
 fallacy to suppose that fires do good inasmuch as they provide em- 
 ployment to reinstate what has been burned. The labour would 
 fall to be expended in the production of capital elsewhere, and the 
 wealth of the community would thereby have been increased. 
 If the losses caused by fire in the United Kingdom amount to 
 5,000,000 annually, that sum is lost to the nation, and the price 
 of bread and all other articles of consumpt is more or less affected 
 thereby. 
 
 The practice of Fire Insurance must be credited with supplying 
 the means directly and indirectly whereby an immense amount 
 of life and property has been saved, such as rectifying the faulty 
 construction of buildings, separating hazardous from the non- 
 hazardous, and ascertaining the combustible nature of products 
 when brought into contact with each other, or by themselves. 
 Policyholders are encouraged to provide private appliances for 
 extinguishing fires. Ex gratia payments are made to persons who 
 assist in the removal of property from danger of fire. Salvage 
 Corps are established and upheld in commercial centres, whose 
 especial duty is the saving of property from fire and its conse- 
 quences. Until a comparatively recent date, Fire Brigades were 
 maintained by Insurance Offices, the municipal idea of protection 
 
238 
 
 being confined to the suppression of thefts and housebreaking. 
 The authorities restricted the outlay on extinguishing appliances 
 to the lowest possible limit, and an enforcement of the Act passed 
 in the reign of George III. for the compulsory provision of 
 engines does not seem to have been thought of. The result here 
 ensued that persons who insured paid for the extinguishment of 
 fires on uninsured property, and efficiency was seriously restricted 
 by the independent action of numerous small brigades. 
 
 In London, in the year 1862, the upkeep of fire engines cost the 
 Offices .25,000, and it was estimated that at that date not more 
 than two-thirds of the whole insurable property in the Metropolis 
 was insured. In 1823 a special agreement was entered into 
 between the Municipal Authorities in Glasgow and the Insurance 
 Companies to enable the latter to have the assistance of the City 
 Engines outside the Royalty, and it is recorded that the charge for 
 attendance of police and engines at a fire in Donaldson's Cotton 
 Store in 1829 cost the insuring offices no less than 425 7s. 3d. 
 The principle that the Civic Authorities are bound to undertake 
 the extinction or suppression of fires as a public duty, reimbursing 
 themselves by taxation on the inhabitants, has now in part been 
 recognised. The expenses of the London Fire Brigade are at 
 present paid partly by Parliamentary grant, partly by the Insur- 
 ance Companies, and partly by a tax on the inhabitants. In 
 Glasgow, under the "Police Act of 1866," the expenses of the 
 Fire Bridge are met by a municipal tax and a limited charge upon 
 the owners of property in which fires occur, the latter of which is 
 voluntarily liquidated by the Fire Offices in which the properties 
 may happen to be insured. 
 
 The restrictions of our local Police Acts in regard to the safe 
 construction of buildings are confined to the limited form of Dean 
 of Guild procedure. No proper protection to life and property 
 from the danger of fire in badly-built tenements is practised, and 
 it is remarkable that the repeated representations made to the 
 Authorities by Insurance Companies relative to this important 
 subject remain unheaded. 
 
 We have before stated that the rates for Fire Insurance are 
 regulated by the character of what is called the risk, and it remains 
 to be added that the law of supply and demand also forms an 
 important factor in the government of charges. The marked 
 differences which, however, occur in the loss ratio, and the causes 
 which undoubtedly affect the increase or decrease of fires, form 
 
239 
 
 insurmountable obstacles to an arrival at the correct equivalent 
 required. 
 
 In evidence of the great fluctations in the percentage of losses 
 on premiums received, it is recorded that in Canada during the 
 last decade the rate has been as low as 48 per cent, and as high as 
 225 per cent, per annum. The variations in this country have not 
 been so great, but sufficient to show the difficulty of striking a mean. 
 
 The causes which influence the increase or decrease in the num- 
 ber of fires are numerous, and it is a fact that a large proportion 
 nearly five-sixths occur in insured property. The inference 
 here is not pleasant to contemplate when it is remembered that 
 probably not one-half of the insurable property in the United 
 Kingdom is covered by insurance. In 1833 four hundred and 
 fifty-eight fires occurred in London. In 1881 the number was 
 nearly 2000. The percentage of unknown causes of origin has 
 also greatly increased. In 1833 the known causes in London 
 were 88 per cent., unknown 11 per cent. In 1866, known 56 per 
 cent., unknown 43 per cent. 
 
 Fires increase when the general trade of the country is depressed, 
 and decrease when trade is good and money plentiful. Certain 
 districts suffer more from fires than others, independent of the fact 
 that the manufacturing interests are the same, and that the water 
 supply and other means for suppressing outbreaks are equally 
 efficient. Some nationalities are found to have a more intimate 
 acquaintance with fires than others. 
 
 The arrangements for regulating the amounts payable to 
 assured under claims for indemnity are entrusted to Fire Assessors, 
 who act as Agents for the Companies in the settlement. The 
 functions of an assessor are probably the most important and 
 difficult in the whole range of Insurance practice. An intimate 
 knowledge of the usages of every branch of industry, a clear 
 understanding of Insurance law, and a special insight into the 
 many characteristics of human nature, are only some of the 
 numerous qualifications required for a successful fulfilment of the 
 duties involved. 
 
 The settlement of claims is now much simplified by the uni- 
 formity of conditions in the contract adopted by the Offices, the 
 improved book-keeping arrangements now practised by the mer- 
 cantile community, and the general acceptation of the principles 
 of arbitration by all parties. 
 
 The relations between Fire Offices and the insuring public in 
 
240 
 
 the settlement of claims for indemnity have all along been happily 
 of an amicable character, but it is interesting to note that sufferers 
 from fire appear to expect more liberal treatment from Fire 
 Offices than they could hope for in the ordinary course of business. 
 The reasons herein appear to be that in adjusting claims ifc is 
 difficult in a large proportion of cases to arrive at what were the 
 exact values and quantities of property wholly or partially 
 destroyed, and that where there is a doubt the benefit is given to 
 the assured, and that liberality in settling claims is the use and 
 wont principle of assurers. The difficulties encountered by Offices 
 in resisting claims which are in appearance fraudulent are 
 formidable, and the assistance extended to them by the law is, 
 perhaps, not what they have a right to expect. In nearly every 
 State in Europe, in America, and in other parts of the world, 
 enquiries by public authority take place into the cause of every 
 fire, and in some parts Insurance Companies are expressly pro- 
 hibited from paying claims until a certificate be granted by the 
 Fire Coroner or Marshal that the cause was accidental, or not 
 fraudulent. Something akin to this was in practice in England 
 at the latter end of the eighteenth century, when what was known 
 as the " Churchwarden " clause was usual, the purport of which 
 bore that before obtaining settlement of claims the assured were 
 required to produce a certificate from a minister or churchwarden 
 that they were persons of reputable character. 
 
 In 1825, when fires were uncommonly frequent in Glasgow, the 
 Sheriff of Lanarkshire was constrained to intimate that he would 
 investigate the cause of every fire which occurred in his jurisdic- 
 tion, through the medium of the Procurator-Fiscal. The reasons 
 he advanced in favour of this step were: Firstly, that where the 
 cause was attributable to accident the parties would stand blame- 
 less in the eyes of the community;, secondly, if culpable negligence 
 were established the insurers could consider whether the assured 
 ought to recover; and, thirdly, where design was traced it would 
 lead to punishment and detection of crime. Unfortunately, the 
 plan was prohibited by the Lord Advocate, who restricted the 
 investigation to cases where good grounds were supposed to exist 
 that wilful fire-raising had occurred. 
 
 It seems beyond question that the great competition which 
 exists and has existed among Fire Offices has had the effect of 
 increasing the volume of fires, and has added to the crime of fire- 
 raising and perjury. Claims which appear fraudulent are too 
 
241 
 
 readily paid by Companies who dread the unpopularity which 
 seems to follow successful or unsuccessful resistance in courts of 
 justice. Claims by persons of influence are, perhaps, more loosely 
 dealt with than those by other classes, not because the morality of 
 the one is higher than the other, but on account of the connection 
 involved. The consequences of all this point conclusively to an 
 encouragement of crime, and a tax upon the honest policyholders 
 in the shape of increased premiums to meet unjust claims. / 
 
 The financial power wielded by Fire Offices is evidenced by the 
 enormous funds they have succeeded in accumulating. In 1881 
 published accounts of 50 British Offices showed that they held 
 paid-up capital and reserve funds to the amount of 20,000,000. 
 The annual revenue from premiums and interest alone totalled 
 10,000,000, the disbursement on account of claims to 6,000,000, 
 to agents for commission 1,325,000, and for expenses of manage- 
 ment 1,580,000. These figures are sufficient to prove that Fire 
 Insurance forms an important item in* the financial economy of 
 the nation as an accumulator and investor of capital and an 
 employer of labour, and that the confidence of the public in Fire 
 Offices generally is not misplaced. 
 
 The facilities given for the formation of Fire Insurance Com- 
 panies, and the important relations between them and the material 
 interests of the community, demand that a system of supervision 
 should be undertaken by public authority. The soundness of the 
 large majority of our offices does not admit of doubt, but bubble 
 companies are no rarity in insurance history. The failure of a 
 Fire Office involves a loss not only to shareholders, but to the 
 public in the shape of unsettled claims and unexhausted premiums. 
 As the law at present stands, there are no means of judging 
 whether a Fire Company is solvent or insolvent. The publication 
 of accounts is not compulsory, and where such is voluntarily done 
 no guarantee for accuracy or soundness of method is obtained. In 
 all enterprises of a public character frauds more or less audacious 
 are practised, and Fire Insurance has been no exception to the 
 rule. Insurance "Chevaliers d'liidustrie" will continue to flourish 
 as long as the law will allow. Legislative restrictions would pro- 
 tect the public on one hand, and on the other aid respectable 
 concerns in the pursuance and development of a legitimate and 
 useful commercial undertaking. We have already said that it is 
 sound economy to insure. Permit us to add the proviso, that it 
 must be insurance with a solvent company. 
 
Experience has enabled underwriters to classify risks in such a 
 way that what are termed non-hazardous properties do not con- 
 tribute in undue proportion to meet losses under the hazardous 
 classes, and vice versa. The tariff enactments on various kinds of 
 risk, such as Warehouses, Flax, Corn, Woollen, Cotton, and Oil 
 Mills, Distilleries, &c., have effected reductions of rates, and have 
 promoted security from fire by a carrying out of improvements in 
 the construction of buildings, and in the methods of manufacture. 
 The public generally have long recognised the truth that fires pay 
 nobody, and the advice of the experienced surveyor on the important 
 subject of prevention is now as readily asked as given. 
 
 A monopoly of Eire Insurance Companies in this country is 
 practically impossible, and competition will ever guard the insured 
 against paying exorbitant rates, it being always understood that 
 the capital invested and Tisked will require an equivalent return, 
 as in every other commercial pursuit. 
 
 A study of the economical aspects of Fire Insurance suggests an 
 investigation of the subject from two points viz., the Insurer and 
 Insured. A glance at the enhanced value of shares in old-estab- 
 lished Companies shows that the business of Fire Underwriting has 
 been of a profitable character, and that the reverse is the case with 
 offices of more recent formation. As we have before endeavoured 
 to show, the loss ratio fluctuates good years are succeeded by bad 
 ones. Chance to a certain extent favours or frowns upon young 
 and old offices alike. The mania for floating Companies experi- 
 enced about 1824 is unlikely ever to recur. No serious alterations 
 in the relations between the Companies and the insuring public 
 are probable. If rates are inadequate history will repeat itself by 
 the withdrawal of the weaker offices, only to reappear if inflated 
 premiums are charged. Last year, it will be remembered, a state- 
 ment was circulated in Glasgosv to the effect that the cotton-spinning 
 industry was being stamped out in Scotland owing to the action 
 of Fire Offices in raising rates so enormously that the proprietors 
 of mills were unable to compete in the open market, and blame 
 was even attached to the Offices for their action. The reflective 
 portion of the public would, however, conclude that if offices con- 
 tinued to insure such risks at unremunerative premiums, the loss 
 would in the end fall upon other sections of the community, who 
 would be called upon to meet the deficiency by an increased charge 
 on paying risks. On the whole, success or failure, as in every 
 other commercial undertaking, is dependent to a great extent on 
 
243 
 
 sound management, and fair returns of profit on capital may nearly 
 always be hoped for where prudence and economy are exercised in 
 the conduct of business. 
 
 From the assured's standpoint the economy of insuring is easily 
 demonstrated when we consider that, leaving interest out of the 
 calculation, it would require 500 years ere the premium, on a risk 
 at the ordinary rate of 4/ per cent., amounted to the sum assured. 
 If 500 buildings were insured for 100 each at an annual premium 
 of 4/ per cent, and a total loss of one was experienced yearly, the 
 Company insuring would have a debit balance each year in respect 
 of working expenses. A very rare exception to the sound economy 
 of insuring might be found in the case of a person or body of per- 
 sons holding jointly a large amount of property scattered over a 
 wide area and of limited value. The premiums might be more 
 than sufficient to meet the losses, as the assurer's profit and ex- 
 penses of management would be saved. This system has been 
 followed by Government during the last twelve years in several 
 departments, but no statements are published to show whether a 
 profit or loss has occurred. 
 
 The contract of Fire Insurance is optional with both parties, 
 and as it is generally entered in this country for one year only the 
 Assurer has frequent opportunity of demanding an increase of 
 premium against the security should such be considered necessary, 
 and the Assured may decline to pay the equivalent asked if the 
 charge be thought exorbitant. Rate panics have frequently occur- 
 red among offices during periods of bad business, such as the Tooley 
 Street, London, and Liverpool warehouse fires. These, however, 
 have been speedily succeeded by moderation. The old tactics of 
 advancing and retiring reducing rates to force new ventures 
 from the field, and increasing them when that result was attained 
 are no longer either practicable or desirable. The public are 
 willing to pay rates sufficient to allow moderate profits and share- 
 holders to accept fair returns on their investments. 
 
 Within recent years a large number of our most influential Fire 
 Offices have found new fields of enterprise in the neighbouring 
 Continental States, in America, and in the Colonies, and it is 
 understood that they enjoy a large share of popularity in these 
 countries on account of the undoubted security they can offer and 
 the characteristic liberality of their dealings. From a business 
 point of view, it is, perhaps, a matter of no direct concern to the 
 public whether or not foreign business is transacted by British 
 
244 
 
 Offices, as the Companies, being simply traders, are entitled to 
 conduct their business as they see fit, and it will be readily under- 
 stood that if the business prove unprofitable a speedy withdrawal 
 will take place. / Independent of this, however, the assured in this 
 country need have no fear that they will be called on to contribute 
 for losses on foreign transactions by a "hardening " of home rates, 
 as the legal stipulations in most countries require a publication of 
 accounts which show whether business has resulted in a profit or 
 otherwise, and this publicity will act as a deterrent, if such is 
 needed, against Assurants in one country being taxed to meet 
 losses in another. / -^ 
 
 -- In discussing the economial aspects of Fire Insurance, there is 
 one point the omission of which would be inexcusable, affecting as 
 it does the entire monetary relations between both parties viz., 
 the expenses required or charged for the carrying on of the busi- 
 ness. The labour entailed in the conduct of Fire Insurance differs 
 materially from that needed for Life Insurance. The premiums 
 are smaller, and consequently more troublesome of collection. The 
 facilities afforded for transferring the interest in and locus of the 
 movable property insured, the numerous changes which take 
 place calling for repeated surveys, the limited period for which the 
 contract is usually entered into, and the uncertainty of its renewal, 
 all tend to the increase of managing and agency expenses. 
 
 It is worthy of note, however, that while most of our prosperous 
 Life Companies are striving to reduce the working charges to the 
 lowest possible limit consistent with progress, no such movement 
 is observable with Fire Offices. If in Life Insurance small ex- 
 penses mean increased popularity to the Companies and better 
 terms to the Assured, the same will apply to Fire Insurance. The 
 cheaper the commodity the more readily it is purchased. 
 
 The continuous progress of Fire Insurance is, it may, however, 
 be concluded, in 110 danger of being arrested by a ruthless waste of 
 the public money. As an Institution it is independent of any 
 section of the public. Born of necessity, quickened into life by 
 the calamity of the nation, cradled in the commercial Metropolis 
 of the world, its growth will continue with the advance of civiliza- 
 tion and the material interests of the community. 
 
 The history of Life Insurance in this country also dates from 
 
 the end of the seventeenth century. It is supposed by some 
 
 that the idea of Insurance on human life was borrowed from 
 
 ' the Marine Insurance system, as it appears to have been usual 
 
245 
 
 at that time to underwrite lives after the manner of Marine 
 Insurance. 
 
 The development of Life Assurance has riot been so regular, or 
 so rapid, as that of Fire Insurance, by reason of the abuses which 
 originated in its practice, the length of time required for the 
 proper working out of a difficult science, and the charge of immor- 
 ality persistently advanced against it by the clergy and others. 
 For nearly a hundred years from 1681 the transaction of Life 
 Insurance was altogether prohibited in France, and the scandalous 
 events which happened in this country between 1720 and 1774, 
 whereby gambling of the most pernicious description was carried 
 on under the cloak of Life Assurance, must have had the effect of 
 creating doubts in the minds of the well-disposed as to whether the 
 system could be adapted to benefit the community. 
 
 The creation by law, in the reign of George III., of what is 
 termed " insurable interest," formed the first step to that progress 
 in Life Insurance which has since continued, and which has proved 
 so beneficial to all classes. 
 
 The contract of Life Insurance differs from that of Fire Insur- 
 ance in the important respect that it is not a contract of indemnity, 
 but a simple undertaking on the part of the Assurer on the due 
 payment of the premium or premiums to pay to the Assured or 
 their representatives a certain sum on the occurrence of a certain 
 or contingent event. The contract is generally entered into for 
 long periods, death alone in the majority of cases ending it. The 
 Assurer is bound to receive the renewal premiums on due presen- 
 tation, and to accept notices of Assignations and Dispositions of 
 the interest conform to law. In Fire Insurance the nominal 
 Stamp Duty of Id. is required on each policy. Under the contract 
 in Life Assurance the duty is regulated by the sum assured. 
 
 The law allows that any person has an insurable interest in his 
 or her own life, that a wife has an insurable interest in the life of 
 her husband, and (assumabiy) vice versa, without pecuniary or 
 dependent interest; that a parent cannot insure the life of a child, 
 or vice versa, without such an interest. Partners may enter into a 
 joint Assurance, the amount in the policy payable to the survivors 
 or survivor; and creditors, or trustees for creditors, may insure the 
 lives of debtors in security for sums owing. 
 
 Life Insurance in this country is at the present time practised by 
 two distinct classes of offices called " proprietary" and " mutual." 
 The term " mixed" is now applied to the former because the profits 
 
246 
 
 arising from the business are divided between the Shareholders and 
 the Assured. In mutual offices the whole profits are divided 
 among the Policy holders. An examination into the relative 
 merits of the two classes is uncalled for here, and it will be suffi- 
 cient to remark that there are advantages appertaining to both. 
 Formerly, offices existed which were altogether proprietary, and 
 divided no profits or bonuses whatever to any class of Policy- 
 holders, but these have become obsolete, although non-profit 
 policies are still issued, and form one of three denominations termed 
 "Profit," " Deferred Profit," and "Non-profit" policies. 
 
 The objects to which Life Insurance is applicable are manifold 
 the principal being for family provision, endowments, collateral 
 security, and survivorships. The husband protects his dependents 
 by insuring his life against the contingency of early death. The 
 person with no dependent exercises thrift, prudence, and fore- 
 thought by creating a provision for old age. The creditor assures 
 the life of the debtor to guard against the loss he would sustain 
 were the latter to die before liquidation of the debt. Partners 
 insure jointly so that on the death of one of their number the 
 claims of the executors may be satisfied without the need of with- 
 drawing part of the business capital. 
 
 Until the passing of the " Married Women's Property Act" in 
 1870, and the " Married Women's Policies of Assurance (Scotland) 
 Act, 1880," unassigned policies 011 the lives of bankrupts formed 
 part of the estate assets, and were attachable by creditors, but the 
 provisions of these Acts now render it competent for a solvent 
 person to insure for the benefit of his wife and children, free from 
 liability to creditors. 
 
 Provisions similar in effect have long been in force in Canada and 
 various States in the American Continent. The system, however, 
 is opposed by some on the ground that in many instances premiums 
 will be paid and policies upheld under the protection of the Acts 
 from moneys which beloug by right to Assured's creditors. 
 
 The popularity of Life Assurance is in a great measure attri- 
 butable to the liberal conditions which are now enjoyed by the 
 Assured, and to the protection given by law to prevent frauds of 
 any kind. " Bonuses " or " profits " are divided among partici- 
 pating Policyholders, and may be applied to reducing future 
 premiums, may be converted into cash, or may be added to the 
 sum assured. If adverse circumstances overtake Policyholders, 
 surrender values are granted to a large percentage of the premiums 
 
actually paid. Paid-up policies are given corresponding to the 
 value. Loans are made on the security of policies, repayable at 
 will of the Assured, or deductable when policies become claims. 
 To the ordinary Policyholder restrictions as to residence in foreign 
 parts, are being gradually relaxed. Claims are paid on production 
 of proof, and even suicide with many Companies forms no barrier 
 to the validity of the contract if the policy has been a few months 
 in force, and not even under that restriction in respect of the 
 rights of third parties. The formation of Companies, and the 
 proper conduct of their affairs, are under the strict surveillance of 
 the State. The " Life Assurance Act of 1870" requires a deposit 
 of 20,000 to be made to the Accountant-General of the Court 
 of Chancery before the transaction of business is permitted, and 
 accounts of receipts and disbursements have annually to be 
 deposited with the Board of Trade under heavy penalties for iion- 
 compliance. In effect, every facility is extended to the public 
 whereby a proper estimate of the stability of every British office 
 may be formed. 
 
 The necessity for legislative restrictions is conceded in view of 
 the enormous funds placed in the hands of Companies at what 
 may be termed long credit. At the present time 110 less than 
 435,000,000 of Life Insurance Policies are current. The annual 
 revenue of the offices combined reaches 20,000,000, of which 
 12,000,000 are received from premiums alone. 
 
 Life Assurance is now accepted by the whole civilized world as 
 in absolute conformity with the necessary relations of life, and 
 already there are those in this country who do not hesitate to 
 advocate a compulsory adaptation of its principles as an aid to the 
 reduction of taxation. It is doubtful, however, whether the idea 
 could be carried out, inasmuch as a percentage of non-contributors 
 would be inevitable. The principle of requiring employes to con- 
 tribute to an Insurance fund is acted upon in many banking and 
 other institutions, and has proved of great value as an aid to the 
 maintenance and education of the families of deceased members. 
 
 Government has so far recognised the Advantages of Life Assur- 
 ance as a stimulus to thrift, and the consequent advancement of 
 the general prosperity of the nation, that a scheme is practised by 
 itself whereby any person in a sound state of health between the 
 ages of 16 and 60 may insure for a sum of not less than 20 and 
 not more than 100. This system has not, perhaps, until now 
 met with the success hoped for, but an extension of it 011 a more 
 
liberal basis is, it is understood, presently occupying the attention of 
 the Department. Another example of the encouragement given by 
 the State to the economical benefits derivable from Life Assurance 
 is the enactment that premiums paid under Life Policies with 
 British Offices are under certain limits deductable from assess- 
 ments on income. 
 
 The development of the science and practice of Life Insurance 
 has resulted in an extension of its usefulness to all classes of 
 society, from the crowned head down to the poorest subject. The 
 nobleman bound down by the law of entail devotes a portion of 
 his life-rent to endow the younger members of his family, in order 
 that they may be able to maintain their social status. Clergymen, 
 physicians, lawyers, and salaried officials, who, by the nature of 
 their calling, cannot hope for the accumulation of wealth with the 
 same rapidity as is possible in commerce, insure against the con- 
 tingency of decease at a period when life is becoming every day 
 more valuable in a monetary sense. The merchant starting busi- 
 ness with the assistance of friends, gives his word and a life 
 policy as the only security he can offer. If death overtake him 
 before repayment, the insurance money liquidates his obligations, 
 and the capital remains in. the business, or is withdrawn and 
 invested for behoof of his dependents; or, recognising that business 
 may bring ruin, even at the moment he contemplates retiral on a 
 hard-earned competency, he may find his policy the only uiire- 
 ducible asset in his possession. The workman enjoys the benefits 
 6f the industrial offices and the sick allowance of trades' societies. 
 The most lugubrious object of insurance we heard of is that still 
 practised in many villages in Scotland called " Coffin Societies,' 7 the 
 sole object of which is to provide a coffin for deceased members by 
 the weekly payment of a small sum. It is related of one member of 
 such a society that he refused to continue his subscription 011 the 
 ground that he had contributed for many years and had never 
 received any benefit. The practice of Life Insurance teaches that 
 the longevity of assured is greater than of unassured lives. The chief 
 reason for this is 110 doubt the fact that to be assurable persons 
 must be healthy; but apart from this it will be conceded that those 
 who are indifferent on the subject of the preservation of their 
 dependents or themselves will not by their habits of life conserve 
 the laws of health to the promotion of old age so well as those 
 who are habitually prudent and thrifty, as are the majority of 
 Assurants. 
 
2-49 
 
 The very act of proposing to insure has been the means of pro- 
 longing the lives of thousands. A declinature, postponement, or 
 addition to age on the part of an office is a distinct warning that 
 causes are at work which may shorten life a something the 
 knowledge of which may lead to its renewal or alleviation. Every 
 Life Insurance official knows from experience that to request a 
 man to insure may mean to ask him to save his own life. The 
 great privileges of Life Insurance are never felt more strongly 
 than by those who cannot to-day enjoy them, but who might have 
 done so even yesterday. The axiom " Never put off till to-morrow 
 what can be done to-day ;; is specially applicable to Life Insurance. 
 The duty of insuring is not a compulsory but a moral one on the 
 majority of mankind. 
 
 Life Insurance is also an attribute to social happiness. A wife 
 must feel that her husband has the best interests of herself and 
 children at heart when he opens a policy on his life for her and 
 their behoof. "Ladies' objections" are fortunately less seldom 
 met with now than formerly, and intelligent wives are found 
 urging the duty upon procrastinating or selfish husbands. 
 
 The financial aspects of Life Assurance relative to the commer- 
 cial and social economy of the nation are of the first importance. 
 Government returns tell us that over 11,000,000 are annually 
 paid as claims under Life Policies. The major part of this sum 
 will naturally fall to the share of the widow and the fatherless, 
 who, but for the wise forethought of the breadwinner, would have 
 been left in many cases to eke out a miserable widowhood or 
 childhood, swelling the already large sum of 8,000,000 annually 
 incurred to the State through pauperism. Again, this sum of 
 11,000,00, equal to a daily payment on the part of the offices of 
 over 30,000, falls to be re-invested in the promotion of industrial 
 enterprise of every kind, multiplying capital and producing labour 
 in every country in the world. It has been received in small sums 
 in trust by the Insurance Companies acting as nurseries of the 
 nation's wealth, invested by them for behoof of policyholders to 
 whom, or the representatives of whom, a continual redistribution 
 is being made. A large percentage of the sums received as pre- 
 miums would have been spent on what are termed the luxuries of 
 life, and as consumpt of luxuries is non-productive, irretrievable 
 loss to the wealth of the community would have resulted had Life 
 Insurance not existed. Money would have been scarcer, and con- 
 sequently would have been dearer, the development of commerce 
 
250 
 
 would have been hindered, the cost of living would have been 
 higher, and taxation would have been increased. 
 
 As a direct stimulant to thrift, Life Insurance probably acts 
 more powerfully than savings banks. Every premium paid makes 
 the punctual payment of its successor more imperative. The 
 investment is growing in value both by the sums already paid and 
 the decreased " Expectancy " of the life. To allow the policy to 
 lapse, or to surrender it, would result in loss. A new insurance 
 could not be entered into as cheaply, if at all, and the necessity 
 for it might increase. In banking, deposits are usually repayable 
 at call, and it is the general experience of savings banks that 
 numerous small sums are paid in only to be withdrawn and 
 squandered at holiday and festive seasons. 
 
 Life Assurance was never intended to be a burden on the 
 Assured, and we have already endeavoured to show that offices 
 have done much to prevent loss by aiding the Assured in times of 
 depression. 
 
 In all well-regulated Companies the interests of every class of 
 Policyholder are scrupulously guarded, and held in trust for their 
 behoof. The premiums received are invested so as to produce the 
 highest rate of interest consistent with perfect security. Inde- 
 pendent auditors are called on to overhaul every item of invest- 
 ment and expenditure, and the State, as we have seen, publishes 
 the accounts of all registered Companies at regular intervals. 
 
 Frauds by Companies and deception on offices are now difficult 
 of accomplishment. The crimes of a Wainwright or a Palmer 
 are hardly capable of repetition in these days of clearly-defined 
 insurable interest. Frauds on the part of Assurants pay the 
 penalty of forfeiture, and the law stands sentinel against crimes 
 by third parties having evil or mercenary designs on the lives of 
 others. 
 
 An important duty rests upon offices to resist claims which 
 appear fraudulent, in order that the rights and privileges of the 
 honest Policyholders may be kept intact. 
 
 As in Fire Insurance, it is unfortunate for the public that the 
 appearance of offices in the halls of justice is regarded as tanta- 
 mount to breach of faith towards the insured. The Companies 
 are only performing a duty in defending the interests of every 
 Policyholder on the registers. If an office pay, or has to pay, 
 claims under fraudulent transactions, each Policyholder suffers in 
 a greater or less degree. 
 
251 
 
 Life Insurance as usually practised is not a speculative trans- 
 action, and in this respect has an important advantage over trade. 
 There is no certainty in trade : the reverse is the case with Life 
 Insurance. As Professor de Morgan has it, " Certainty is the 
 thing contracted for." Claims under Life Policies are more easily 
 realisable than trade assets, the sums Assured are paid almost as 
 soon as the legal forms of proof can be procured, and deductions 
 and discounts are unknown where no error has occurred on the 
 part of the Assured at the opening of the contract. 
 
 Mortality tables and interest and expenditure rates are now so 
 well understood that the provision necessary for every policy is 
 known, and insolvency in the case of Life Offices is little short of 
 culpable. It is 110 part of our duty here to enter into the cost of 
 Life Insurance, and the methods in use for calculating and dis- 
 posing of the premiums, and we shall content ourselves by stating 
 that a substantial margin of profit, or, as it is termed, "loading" 
 over actual risk rates, is invariably charged under " Profit " 
 Policies, and 011 a lesser scale under all other Life Insurances. 
 In the "profit" classes, the "profit," after deducting outlays, is 
 returned to the Assured in the shape of bonuses, the measure of 
 which will be in accordance with the selection of lives, the 
 financing, and the expenditure. Prosperous finance, we are told, 
 is admittedly the test of a successful administration, and this is 
 pre-eminently so in all Insurance Institutions. Heavy expenses 
 in the conduct of business must necessarily result in loss to the 
 Policyholders. 
 
 The law does not require that offices shall keep within certain 
 limits of expenditure, although some offices restrict themselves 011 
 this point by their Deeds of Constitution. It is, however, a fact 
 that at the present time the rates of expenditure of Life Com- 
 panies 011 the premium income range from 4 to 67 per cent. These 
 are 110 doubt exceptional, the average being about 14 per cent., 
 but enough is here shown to demonstrate the importance of the 
 subject from the Assured's point of view. Legal restrictions are 
 probably unnecessary, as, if such were enforced, the limit would 
 require to considerably exceed the average above quoted, in order 
 to prevent a monopoly, as new offices would find a difficulty in 
 transacting business under it at the outset. 
 
 In addition to " Profit" Policies, offices still continue to insure 
 011 the non-profit system, under which 110 bonuses accrue. In 
 whole Life Insurances this class appears to be less used than 
 
252 
 
 formerly, as the insuring public recognise that to a certain extent 
 profit rates are charged under them, for which they receive 110 
 equivalent return. Several offices have adopted a deferred system 
 under which the surpluses are reserved for ultimate distribution. 
 
 An important stipulation in the contract of Life Assurance is 
 that the Assured, or their representatives, are bound to produce 
 evidence to the Assurer that the age at entrance has been correctly 
 stated. Much difficulty has been experienced by Policyholders 
 and their executors and assignees who have been unable to 
 furnish direct evidence of birth owing to circumstances beyond 
 their control. Thanks, however, to compulsory registration, these 
 difficulties are becoming less, and with this in view it might be 
 worthy of the consideration of offices whether evidence should 
 not be required before completion of the contract. It has to be 
 remembered that policies are a marketable commodity, and that 
 the question of age, when not admitted, may seriously affect the 
 value. 
 
 The benefits conferred on the community by the practice of Life 
 Assurance are not confined to the purposes for which insurances 
 are effected. The laws relating to mortality and heredity have 
 been examined, and the results have proved of immense value to 
 the pathological and mathematical sciences. The effects of 
 occupation, of habits, and of climate upon longevity have been 
 critically inspected, and the deductions distributed for the good of 
 the public. Employment in whole or in part is found for a 
 numerous body of officials in every town, village, and hamlet in 
 the country. Insurance periodicals are plentiful, and the adver- 
 tising department of nearly every newspaper, magazine, or other 
 public print is laid under contribution to inculcate the "peculiar" 
 advantages appertaining to individual offices. 
 
 Probably no part of the practice of Fire and Life Insurance has 
 been so revolutionized as the agency section. Formerly, the 
 appointment as agent was difficult to obtain, and the applicant 
 was required to give security for intromissions. Canvassing for 
 business was considered "infra dig.^ and business flowed spon- 
 taneously upon the offices. In Fire Insurance the privilege of 
 being insured was recognised by owners of property, and " com- 
 petitive rating " was unheard of. Now, we have changed all 
 that. Less than 50 years ago, Insurance Agents in Glasgow did 
 not number a score ; now they number nearly half as many 
 thousands. Still the transition continues, and will go on until 
 
253 
 
 every man his own agent will be the probable consummation. 
 The economical aspects of this important subject are worthy of 
 examination. Under the old regime every agent being a person 
 of position and social influence, formed a .guarantee between 
 Assurer and Assured of the bona fides of both. The Companies 
 had confidence in their customers, and vice versa. Agents 
 adopted the practice of Underwriting for Companies as a pro- 
 fession, and were regarded as authorities on the terms of Insurance 
 contracts and the usages of offices. Insurances of large establish- 
 ments were wholly confided to their care, and their suggestions 
 and advice were treated with respect by all parties. To-day, 
 owing principally to extreme competition for business, almost any 
 person, independent of social status or capacity, may obtain an 
 agency. The office, instead of being sought after, is thrust upon 
 the likely and the unlikely, and is now held as an adjunct to the 
 ordinary trade or profession of the holder. The rudiments of the 
 law and practice of Insurance in relation to the Assurer, or the 
 Assured, or the Agent, are not understood. No correct conception 
 of the interests at stake is held. Fire proposals are received and 
 kept until the requirements of other business are met, and leisure 
 found to advise the office. Influential Agents, finding the obsta- 
 cles to the successful prosecution of business insurmountable, 
 relinquish active operations, and Companies are left in many cases 
 to do business through the medium of half -interested strangers, 
 who attach themselves to 110 particular Company, and place one 
 office in competition with another in rating and commission 
 allowances. In all this the elements of danger to the Companies 
 and the public are painfully apparent. The " moral " hazard is 
 lost sight of, and security, the foundation of the whole fabric, is 
 weakened. The laws of evolution, hastened by the intelligent 
 discussion on and ventilation of these evils will, however, assuredly 
 lead to their removal or alleviation. The progress of Insurance 
 cannot of necessity be hindered by abuses which are more or less 
 attendant on every enterprise. 
 
 In conclusion, we would venture to assert that an intimate 
 knowledge of the objects and advantages of Insurance will con- 
 tinue to obtain under the influences of universal education. Its 
 existence will strengthen with age and flourish with the march of 
 civilization. Its power to do good is immeasurable : its practice 
 appeals to the best instincts of humanity. 
 
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