standpoint of fire hazard, and such distinctions exist between a thousand different types of property. Again, hardly two buildings within a given class of risks can be considered the same, since they differ in their construction, their environment, and their equipment of devices for preventing and extinguishing fires. Almost every substance and process of manufacture will, under certain circumstances, be the cause of fire. According to a leading schedule there are more than a hundred features of construction in a single building which should enter into the determination of its rate. There are nearly forty features of the city or environment which are important, and nearly forty more of fire appliances. Lastly, there must be considered the hundreds of possible uses to which a building may be put.

1

Naturally the task of estimating risks, when surrounded by so many features, all of which must be taken into consideration, should be undertaken only by those who make this a regular business, i.e., by those who engage in the fireinsurance business. To judge between safe and unsafe risks, and charge rates which are just and adequate, requires that the underwriter should have a knowledge of every business which he agrees to insure. As Mr. F. C. Moore states,1 "There is probably no calling requiring so intimate a knowledge of every other as this. He who assumes the risk of a flour mill, for example, should know more of its dangers than the miller himself. . . Drawing a greater number of contracts in a year than do many lawyers in a lifetime, and standing often face to face with the most perplexing questions of jurisprudence, it may be questioned if he should know less than does the attorney who has made it his profession. Seriously affected by every discovery of the chemist, and liable, at any moment, to have his chances of loss on

1F. C. Moore, "Fire Insurance and How to Build," pp. 22 and 23.

whole classes of risks alarmingly increased by new chemical combinations which follow each other as rapidly as the changes of a kaleidoscope, he should know not less of them all than does the chemist himself. In short, there is scarcely a science, art, or manufacture with which he should not be more or less familiar, and if the successful conduct of any one business or calling requires a lifetime of study and application, how much more should the business of insurance -which demands a knowledge more or less intimate of every other-require lifelong study and the closest and most constant observation. Facts like these serve to show the importance of having a specialized business for the assumption of the risks of the many producers who are ignorant of the relative fire hazard connected with different types of property. Moreover, the natural ability of the insurers will be constantly developed through the experience and training which their work will give.

3. Insurance also serves a very useful purpose in increasing the efficiency of men by enabling them to venture more willingly. As early as 1601 the British Parliament (43 Elizabeth, C. 12) gave expression to this advantage of insurance by describing marine insurance as a means "whereby it cometh to pass that upon the loss or perishing of any ship there followeth not the undoing of any one, but the loss lighteth rather easily upon many than heavily upon few, and rather upon them that adventure not, than upon those who do adventure; whereby all merchants, especially those of the younger sort, are allowed to venture more willingly and freely."

There are many men, who, while capable of engaging in comparatively safe industries, would have their efficiency in business seriously curtailed, if compelled to gamble with the chance of loss through the elements. By being able to transfer these risks of loss to insurance companies for a definite stipulated premium they are relieved from the paralyzing

1

anxiety which results from uncertainty, and are free to direct
their energies along other lines. The value of insurance to
the individual property owner, who does not wish to gamble
with chance, consists in the diffusion of one individual's
loss over a large group of individuals. Insurance takes a
loss, sufficiently heavy to ruin one property owner, and by
distributing it over thousands of others, who pay premiums
to the same company, makes the loss but lightly felt. The
losses resulting from the Chicago, Boston, Baltimore, and San
Francisco conflagrations would have had a paralyzing influ-
ence upon
those communities for years if there had been no
certain method of indemnifying the losers.
But the prop-
erty owners of these cities carried insurance in scores of
companies, situated in nearly every leading country, and rep-
resenting millions of policy holders in all parts of the world,
whose contributions in the form of premiums at once became
available for the rebuilding of these cities. Fire insurance
"is closely and inseparably interwoven with every scheme of
profit and trade, a strong, continuous warp-thread which
lends security to the fabric, and without which it is doubt-
ful if the temerity of the capitalists would meet the necessi-
ties of the poorer population for employment."1

4. But fire insurance plays another very important rôle, besides those already enumerated. It is the support of com、 merce and industry in so far that it is the basis of our whole credit system. The importance of insurance in this respect becomes apparent when we reflect that it is estimated that only about 5 per cent of the world's business is conducted on a cash basis, and that 95 per cent is based on credit.

A thousand illustrations can be cited to show the farreaching influence of fire and marine insurance upon our credit system. A cargo of grain is shipped from the United States to Europe, and is paid for through the shipment of

'F. C. Moore, "Fire Insurance and How to Build," p. 21.

a cargo of manufactures from Europe to America. Here we have a transaction based on credit and consummated without the use of cash. Commodities are used to pay for commodities, and, owing to the costliness of settling international debts by the actual transfer of gold from one country to another, this practice is almost invariably adopted. The whole transaction is based on credit, and the important thing to remember is that the foreign exchange banker, who undertakes the financial settlement of these two shipments, knows that this credit is guaranteed by a fire and marine insurance policy. The insurance of these cargoes in reliable companies made the transaction as certain as though all payments were made in cash. If the property involved in any of these shipments had been destroyed by fire or by the perils of the sea, the creditors would nevertheless be protected, since the loss would be made good by the insurance companies.

Without fire insurance as collateral security the wholesale merchant could not extend credit to the retailer. But with the goods insured in a reliable company against loss by fire, the wholesale merchant can grant an able and honest retailer credit to the extent of five times his capital, and at the same price he would demand if paid cash. Because of the protection promised by an insurance company the wholesaler advances the goods to the retailer. He knows the retailer to be honest and able, and that when the goods are sold he will receive his payment out of the proceeds of the sale. The only risk is the danger of destruction of the goods before the retailer has sold them, thus probably making their payment impossible. Through insurance this risk is eliminated, and the retailer becomes a cash trader, as far as the securing of favorable terms from the wholesaler is concerned.

In the same way, the wholesaler, if he is operating on borrowed money, can secure the most favorable rate from the lender of credit, if he protects his banker or the manufac turer of the goods with an insurance policy. In buying the

goods the wholesaler may pay only 10 per cent of the purchase price in cash, the remaining 90 per cent being advanced as a loan by the banker or manufacturer, the security for the loan being the goods themselves, but only when insured against loss by fire. Of course the wholesaler or retailer, as the case may be, must pay for the insurance, but the reduced price at which he gets the goods, or the favorable rate of interest at which he secures the credit, pays for this insurance over and over again. As an insurance policy may be made to cover all stock that goes into a store from time to time during the term of the policy, $10,000 of insurance may, in the course of a year, have under its protection from $50,000 to $75,000 worth of merchandise, thus distributing the cost of the insurance over large property values.

It may be shown in another way that fire insurance enables a man with limited capital to transact a business much larger than he otherwise could. Assume a grain dealer to be the possessor of $40,000 capital. With this capital he purchases wheat in the West at $1 a bushel, with a view to selling it in the East or storing it in a warehouse for a more favorable market. If this grain dealer's transactions were limited to cash purchases of wheat, he would probably be obliged to wait several weeks before he could sell his grain and liberate his capital for a new purchase, and his profit would be exceedingly small, since modern competition in that business enables him to realize a profit of only one to two cents per bushel. Grain dealers cannot afford to transact business on this basis, and all are obliged to resort to the use of credit. Instead of limiting his purchases to 40,000 bushels, our dealer will at once have this wheat inspected, graded, represented by warehouse receipts, and will have it insured against loss by fire in a reliable company. Then he will take the warehouse receipts, representing the wheat, and the insurance policy to his banker as collateral security for a loan, and the banker will lend him money, probably, to the