one type of business suffers much more from loss through bad debts than another. Again, in a given line of business, one man may make his terms of sale very different from another. He may confine his sales to a particular territory, or he may cater to the trade of a particular class, or his credit department may be liberal instead of conservative. Furthermore, the initial loss provided against in the policy increases as the sales of the business grow. Thus, if we assume the sales of a prospective applicant for credit insurance to equal $100,000, and the initial or expected loss arranged for in the policy to be 1 per cent of these sales, then the insured must suffer a loss of $1,000 before the company can be called upon to pay any excess. In case, however, the business conditions are prosperous and the sales for the year increase to $150,000, then the initial loss, fixed at 1 per cent, will automatically increase to $1,500. But, on the other hand, the initial loss is limited in the policy to a stipulated minimum, say $1,000, and will not decrease if, because of poor business conditions, the sales fall below $100,000. This is due to the well-recognized fact that decreased sales are indicative of business conditions which tend to increase the danger of loss through bad collections.

2. Coverage. But a credit-insurance company does not even promise to pay all losses over and above the initial loss, because if no other restriction be made, an unusually large amount of credit may be recklessly granted to a single customer, thus destroying the application of the law of average to this form of insurance. To avoid this possibility the policy provides for a "coverage agreement," according to which the insured is promised protection for only an agreed percentage of any one customer's capital rating, i.e., a certain percentage of the financial worth of the customer as furnished by some leading mercantile agency. The insured is given the option of selecting either Bradstreet's or Dun's as the mercantile agency whose rating he wishes to have

used as the basis of the coverage agreement. Since the rating systems of Bradstreet's and Dun's perform such a vital service in the granting of credit insurance, the system of one of these mercantile agencies is here presented:

In case a customer of the insured has no capital rating with either of the two mercantile agencies at the time when the goods are shipped to him, the company is willing to protect the insured by a coverage agreement based on the rating as given in a special report by the mercantile agency, if issued either three months before or after the shipment. According to the coverage agreement the percentage of the customer's "estimated pecuniary strength," as shown by

'The Bradstreet system is similar, except that different notations are used.

Dun's, for example, which may be extended by the insured in the form of credit and will be covered by the policy, varies all the way from 10 to 30 per cent, according to the nature of the business. The limits of credit thus fixed upon are determined by the experience of the company, and it is regarded as vitally important that they should not be exceeded.

3. The Single Account Limit.-But the company does not even promise in all cases to cover the customer for the agreed percentage of his financial worth. Instead, it limits its liability on each customer to a specified amount, called the "single account limit." The meaning of this restriction may be illustrated as follows: Let us assume that the policy limits the amount of credit that may be extended to any customer to 20 per cent of his financial rating, and that the "single account" applicable to each customer is limited to $2,000. Now, if the customer is rated as worth from $1,000 to $2,000, the insured will be protected to the extent of $200, i.e., 20 per cent of the minimum capital rating of $1,000. If the customer has a rating of $3,000 to $5,000, he will be covered to the extent of $600 (20 per cent of $3,000); and if worth $10,000 to $20,000, the coverage will equal $2,000 (20 per cent of $10,000). But on all capital ratings in excess of $10,000, the company's liability on any customer will be limited to the $2,000 single account limit. In other words, the coverage percentage of 20 per cent becomes inoperative if 20 per cent of the capital rating for the customer exceeds $2,000. Many instances, however, may arise where business conditions make necessary a larger single account limit, and in such cases, for a special consideration, a larger policy can be agreed upon. The amount for which a company is willing to be liable as regards any one customer will depend upon the nature and the needs of the particular business, and varies from about $1,000 to $25,000.

4. Credit Insurance Based Upon the Credit Rating.The rating system of R. G. Dun & Company shows that this mercantile agency gives each person two ratings, viz., a "capital rating" and a "credit rating." It is apparent that a person's reputation for prompt payment of debts does not necessarily depend upon his estimated financial worth. A person worth $10,000 may be prompter or more reliable in meeting his obligations than another who is reputed to

By this rider attached to and made part of Bond

issued by The Amenca redit-Indemp Co. of New

it is agreed that the following provisions shall be added to and made part of Section No. 2 of this Bond: the governing rating of the debtor is a rating not covered under the body of said Section No. 2, or if it is blank as to capital or credit, or both ("blank blank"), a loss on such debtor, if otherwise coming within the provisions of this Bond, shall be covered to the following

extent:

75% of the

The gross amount covered on any one such insolvent debtor shall beindebtedness at the time of his insolvency but shall be limited to% of $70 gross. Provided that the aggregate of the net losses to be included in the adjustment under this Bond on all debtors coming within the provisions of this rider shall be limited to 75% of $4000

The net amounts of proven losses covered under this rider shall enter with the net amounts of all other losses covered and proven under this Bond in calculating under Section No. 6 the amount from which the Initial Loss, to be borne by the indemnified, shall be deducted, and this rider shall in all respects have the same effect as if its provisions had been incorporated in the body of said Section No. 2.

When this rider is attached

to Bond the premium is "25th per

Thanisand additional

FIG. 20.-Sample Form of Rider Covering Losses on Debtors of Inferior Rating.

be worth $500,000. For this reason R. G. Dun & Company specify four "credit ratings" after each capital rating, viz., "high," "good," "fair," and "limited." These four grades are usually referred to as first, second, third, and fourth credit ratings.

It should here be noted that credit-insurance companies must, in making their "coverage agreement," take into account the credit rating of the customer. In the "regular” policy this is done by providing that the insured shall be pro

APPLICATION TO:

THE AMERICAN CREDIT-INDEMNITY COMPANY

OF NEW YORK

FOR BOND OF INDEMNITY

We, the undersigned, hereby make application to THE AMERICAN CREDIT-INDEMNITY COMPANY OF NEW YORK for a Bond of Indemnity to the Amount of $ said Bond, if issued, to be on the within form, the terms whereof are agreed to by us. We herewith tender our check for $

order of said Company in payment of the premium on said Bond.

We select the.

to the

Mercantile Agency to govern exclusively shipments under said Bond.

6. Do you sell mostly to Manufacturers, Jobbers or Retailers?.

7. Have you any information detrimental to the credit or responsibility of any person, corporation or co-partnership, to whom you have made, or contemplate making, any sale to which said Bond, if issued, will apply?

8. Have you within the past twelve months made, or do you contemplate making, any material change in your terms of sale, or in the territory you cover?

As a basis of the Bond hereby applied for, and of any Bond which may hereafter be issued to us, we warrant the following statement of our gross sales, gross losses, and of amounts collected by us on credit insurance, to be correct:

This application and said Bond, if issued, shall constitute the entire agreement between the undersigned and The American Credit-Indemnity Company of New York, any verbal or written statement, promise or agreement, by any Agent of the said Company to the contrary notwithstanding. It is also agreed that this application, whether as respects anything contained therein or omitted therefrom, has been made, prepared and written by the applicant, or by his own proper Agent.