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opment of manufacturing and commercial processes, the shortcomings of this system became more and more apparJustice in rate-making required that all these changes should be properly considered, and in consequence less and less reliance was placed upon personal judgment in making rates, and instead the companies depended more and more upon the use of specialized schedules.

Originally two rates were applied, according to whether the building was of brick or frame construction, but such important features as occupancy received little or no consideration. In more recent years the companies have resorted to elaborate classifications of risks, until to-day properties are divided by some companies into more than a hundred main classes, each class in turn being subdivided according to construction, fire protection, and the type of city. Statistics and other data have been collected by the several companies with a view to ascertaining the average cost of insuring each of these groups. In fact, it is stated that over $1,000,000 is expended annually by the fire-insurance companies of this country for rating purposes.

A great variety of rating schedules are used in various states and cities of the country, but most of them, while differing in details, resemble each other in principle. In the case of various groups of properties, where but few differences exist in the class, such as residences, schools, etc., the rate for the class is applied, and allowance made for the type of construction and the presence or absence of efficient fire protection. On the other hand, in the case of "special haz. ards," such as manufacturing risks, mills, elevators, warehouses, etc., special schedules are prepared. These, generally speaking, describe a building which is "standard" as regards construction, arrangement of processes, and fire-extinguishing facilities. For such a standard risk a basis rate is then adopted, which, in the judgment of expert raters, measures the various factors pertaining to the hazard involved. To

this basis rate certain stipulated charges are next made for defects in construction, arrangement, and fire-protection facilities, as compared with the defined standard building. On the other hand, certain deductions are made for unusually good features as compared with the standard. Deductions or charges are made also for the presence or absence of coinsurance, faulty management, exposure hazards, and other features, and in nearly all cases the penalties in the form of additions for defects are made so heavy as to furnish a strong inducement to the manufacturer for the installation of improved methods of construction and operation. A large number of such special schedules exists, many of which are very intricate and detailed. In most instances expert service, usually given by men acting for a group of companies, is necessary for their application.

In the rating of mercantile properties fire-insurance companies use a large variety of schedules, varying from the simple in small towns to the elaborate in larger cities. According to the average schedule, cities and towns are divided. into classes according to the degree of fire protection afforded. Next two basis rates are adopted in each town-one for brick and the other for frame construction-each measuring the hazard for an assumed type of building in each class. In the brick schedule additions are then made for defects of construction and exposure hazard, and deductions allowed for good features. To the rate as determined up to this point, called the "unoccupied building rate," an addition is made to measure the hazard of the occupancy connected with the building. The contents of the building, on the other hand, are often rated by making an addition to the building rate as outlined in the schedule, but more frequently the contents of such buildings are grouped into from three to five classes, and an addition made to the building rate for each of these classes.

In the case of frame buildings a basis rate is adopted in

each town and city, to which additions are made covering the occupancy and the exposure hazard. The rate on the contents of frame buildings, however, is seldom higher than the rate on the building, and in most cases is less, because the goods can often be easily removed in case of fire.

In recent years several attempts have been made to devise a schedule which can be universally applied throughout the country in rating mercantile risks. Of these attempts two deserve special mention, namely, the "Universal Mercantile Schedule," prepared by a large number of underwriters, acting under the chairmanship of Mr. F. C. Moore, and the other the "Mercantile Tariff and Exposure Formula for the Measurement of Fire Hazards," designed by Mr. A. F. Dean, of Chicago. While these two schedules present many vital differences, their object is to furnish a basis of rating mercantile risks which can be applied to all mercantile properties, no matter where located. The Universal Mercantile Schedule, or a modified form of it, is now used in many of our largest cities, such as New York, Philadelphia, Cleveland, and others, while the so-called Dean Schedule is used widely in a number of Western states.

CHAPTER XVII

FIRE-INSURANCE RATING (Continued)-SCHEDULE

RATING

WITHOUT attempting to trace all the various rating schedules which have characterized the fire-insurance business in the past, or are now applied to certain special types of property, let us analyze the leading schedule of to-day, namely, the "Universal Mercantile Schedule." As its name suggests, this schedule was framed for the rating of mercantile property, by far the most important class, both as to value and the number of risks. It is the product of hundreds of eminent underwriters under the leadership of Mr. F. C. Moore, and represents their united underwriting experience. "It is," as Mr. Richard M. Bissell writes, "so far as results yet obtained are concerned, the most important of any of the tariffs which have been issued. It is also, of all rating schedules, the one which had been carefully and minutely elaborated and adjusted to meet the almost infinitely varied combinations of the factors of construction, occupancy, and protection which are to be found in the mercantile buildings of a large city. This schedule was a great advance beyond anything before known in the history of scientific rating, and has exercised a very important and growing influence upon the framers of other schedules subsequently made, many of which are but imperfect adaptations of the Universal Mercantile Schedule." 1

'Richard M. Bissell's lecture on "Rates and Hazards, Insurance Lectures, pp. 115, 116.

"Yale

Standards in the Universal Mercantile Schedule.-The starting point in the fixing of a rate on a non-fireproof brick building under the Universal Mercantile Schedule is the adoption of a standard-a standard building in a standard city-by which to judge other risks which may be poorer or better in quality. A standard city is one with gravity waterworks with sufficient power to throw water over fivestory buildings, and with water pipes and mains not less than six inches in diameter in the dwelling section and not. less than eight inches in the mercantile section. It must have a paid fire department with twelve men to each steamer, and with at least two steam fire engines to each square mile of compact portion. Among other requirements, this city must also possess a fire-alarm telegraph, an efficient police, paved or other hard streets, the majority of which are seventy feet wide, a good building law, no outlying exposures such as lumber districts to cause sweeping fires, and a previous five-year record not exceeding $5 annual fire loss per $1,000 of insurance.

A standard building, as defined by the schedule, is one with brick or stone walls at least twelve inches thick at the top story and increasing four inches in thickness for each story below to the ground. Among other requirements, the building may not be over 2,500 square feet in area, or over four stories high, and the floors, windows, beams, girders, walls, and doors must be of approved construction, so as to resist the progress of a fire. For such a standard building, situated in a standard city, the schedule fixes a rate of 25 cents per $100 of insurance, and this rate-the "basis rate" -is the starting point in the computation of all rates. the building or city under consideration does not measure up to the standard adopted, the actual rate charged is found by adding certain charges to this 25-cent basis rate for any defects, or by deducting certain charges from this rate for exceptionally good features. In framing the schedule the

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