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North Dakota, so that it meant that approximately half the North Dakotą farmers of their own initiative and without personal solicitation applied for and had their crops insured against hail.

That, it seems to me, has some bearing on the possibility of the plan proposed in this bill being utilized by the farmers, at least in certain areas. Personally it would be my guess that the wheat growing areas, where the hazards associated or connected with the crop are relatively great but not so great as to make the premium essentially prohibitive—those areas will be the ones that will most generally avail themselves of this form of protection.

Senator POPE. If these local committees are active in presenting the matter to the farmers within their region, do you think the suggestion that has been made at different times, that we would probably receive applications from 50 percent of the farmers, is a fair assumption?

Mr. VALGREN. I think in certain areas it may be possible that you may have applications from as high as 60 percent of the farmers. I believe that will be a very small part of the wheat-producing territory, however, and in the eastern part of the country, where wheat is raised only as one of many crops and the farmer does not have as much at stake on his wheat crop as he does in more typical wheat States, and where yields are more certain than they are in parts of the typical spring and winter wheat area, there, I believe that relatively few farmers will apply for it, even though the rate is very low. That is, of course, merely a guess, but my views are that the farmers in those areas where they do not have as great need for insurance, are not as insurance conscious as they are in some of the areas where they specialize to a large extent in a given crop, wheat, for example. In these latter areas the weather and other bazards are such as to remind them very frequently and unmistakably of the need for insurance.

Senator POPE. Are there any other questions? If not, unless you have something further to say I believe that is all, Mr. Valgren.

Mr. VALGREN. If there is no objection I would like to inject one little suggestion. I am not sure that it would need to go into the bill. I believe, however, that in guaranteeing the farmer a given percentage of his prospective average yield based on past records, as it must be based, he should be entitled to the full guarantee only when he has performed or is forced to perform all the operations usually connected with the production of the crop.

Senator FRAZIER. He should not be entitled to any insurance unless he does that, should he?

Mr. VALGREN. Well, I have reference, Senator, to a situation under which the man in the middle of the season, or earlier, experienced a total destruction of his crop and is thereby exempted from going through the expense of harvesting.

Now, if you tell all farmers in a given area, for instance, that under this plan they may be guaranteed 75 percent of their own average yield, as suggested more or less by the board, then it will happen that the man who has a total failure will be better off than the man who has a partial failure.

Suppose that two farmers, for example, are insured, each of them for 8 bushels per acre, as a result of the fact that the average yield on each of those farms is somewhere between 11 and 12 bushels. One of these farmers in a given year actually produces 5 bushels and harvests 5 bushels and is paid indemnity equal to 3 bushels. He has

received a total of 8 bushels to cover all the expenses of production including harvesting.

The other farmer has a total failure, or so near total that he is excused from going through the process of harvesting. He would, without qualification of the plan, be paid 8 bushels and would be better off than the other farmer be cause he would save the cost that the other farmer spent in harvesting.

Senator FRAZIER. And, of course, if the hail came earlier, the man that has a total loss might put that same ground into some other crop and use it for hay, feed.

Mr. ValGREN. That I think would also have to be considered, what alternate use could be made of the ground during that season.

Senator PoPE. I am wondering if under this bill the corporation would have a right to make regultions to take care of that sort of a situation.

Mr. VALGREN. I rather think so, and I hardly believe it will be necessary to make a stipulation in the bill to the effect that the cost of harvesting must be taken into consideration. Nevertheless if this is not done by the board, then the man who produces a partial crop, say, equal to about 2 bushels per acre, will do his best to get out of harvesting. He will not want to make any effort to salvage that crop, because he is better off if he doesn't have to spend anything on harvesting and can still get the total amount guaranteed.

Senator FRAZIER. Of course, he should not be required to harvest unless the yield would pay for the harvesting process.

Mr. VALGREN. No; but if the cost of harvesting is allowed for in the adjustment, then he would be more willing to proceed with the harvesting and salvage the partial crop for the Government and for himself than if no allowance is made for harvesting costs.

Senator SCHWELLENBACH. But his premiums would go up the next year?

Mr. VALGREN. Yes.

Senator SCHWELLENBACH. They should take that into consideration?

Mr. VALGREN. That is right. And I may say in conclusion that one thing I like about this plan is that the premium should be more or less self-adjusting as time goes on. I am assuming that the board will in the second and third year take into consideration the experience of the first year and add that to the years for which it had data to start with, and that probably eventually they will appraise yields on the basis of the past 10 years rather than 6 years, as has to be done to start with. And if the insured is intelligent he should be aware of the fact that, as indicated by Senator Schwellenbach, if he does not do his best to hold down the indemnities that he calls for, that misdemeanor will be reflected in the future premiums that he will have to pay.

Senator POPE. I suppose these county committees would be watching that situation?

Mr. VALGREN. Yes.

Senator POPE. They would be interested in that thing, particularly in the possible increase of premiums the following year.

Mr. VALGREN. Yes; and that is one of the valuable features, as I see it, of having a county committee or a local committee connected with the management.

· Senator POPE. Farmers, neighborlike, like to know what is going on, what the other fellow is doing. Are there any other questions?

Mr. Valgren, we are very much obliged to you for your discussion of this matter. It has been very helpful in a number of ways.

Mr. VALGREN. I am glad to have had the privilege.

Senator Pope. We will call Mr. Gruhn for a very brief statement. You might give your full name and the position you occupy, Mr. Gruhn.

STATEMENT OF A. V. GRUHN, GENERAL MANAGER, AMERICAN MUTUAL ALLIANCE, 919 NORTH MICHIGAN AVENUE, CHICAGO, ILL.

Mr. GRUHN. My name is A. V. Gruhn. I am general manager of the American Mutual Alliance, of Chicago, which is an association of mutual fire and casualty insurance companies.

I did not come here to appear on this legislation. I happened to come into the room this morning for some general information and was informed that a communication had been sent to my office suggesting that I present the view of the mutual companies I represent with respect to the bill before you.

I am not on this short notice prepared to give you in detail what you may consider valuable in your study of this question. When crop insurance was under consideration by the President's Committee, the associations of the mutual companies recognized it as a problem worthy of consideration and appointed a committee to cooperate with the Department of Agriculture and the President's Committee in its study and investigation of the question, looking to a plan for insuring growing crops.

We met, along with other insurance interests, with the committee, and we had several of our technical men meet with the experts of the Department of Agriculture to consider the problem from the practical standpoint, with particular reference to the method of rate making. · There are about 2,600 mutual fire and casualty companies in the country, the majority of them farm mutuals. There are farm mutuals which practically exclusively engage in the hail-insurance business.

I sent out a questionnaire to the 2,600 companies, suggesting to them that they give consideration to this question in the light of the fact that it was an important one, and endeavored to ascertain just how many companies were engaged in some form of crop insurance.

I heard from a large number of companies, but find from the list which I have received about 13 companies engaged practically exclusively in the hail insurance business in Iowa, Wisconsin, Minnesota, Kansas, one in Michigan and one in Nebraska, and an examination of the insurance department reports discloses about 19 others. To what extent their operations are limited to crop insurance the reports do not disclose, but they do present the information that they are engaged in the hail insurance business.

We feel that in the light of past experience, which in a general way has been recognized as unfavorable so far as the private institutions which have attempted to go into the crop insurance business are concerned, that does not mean that it cannot be worked out and the solution cannot be found for it.

It does seem to us, however, that approached from an insurance standpoint, its success depends upon almost entirely, not so much upon what you outline in the legislation, as what is done by the corporation that is set up.

Our experts who met with the Department were impressed with the volume of data which was available in connection with wheat, and felt that a workable rate program could be developed on an equitable basis, which from an insurance standpoint would be sound. Whether or not placing so great a weight on the individual experience, so to speak, of the farms, as modified by the experience in the surrounding territory of a county or so, will produce in certain sections a rate so high as to discourage voluntary applications for the insurance, is a question subject to debate.

My personal feeling was that in certain territories, even limiting the farmer in what he has to pay, the cost, the loss cost, and the bare administration cost of the committee, would still produce a very high rate. Now, insurance has, because of some experiences, some misgivings as to the possibility of ultimate success. We perhaps share in that in a measure, but we do feel that inasmuch as this is a much broader question than that of insurance, and is part of a tremendous problem which we all ought to cooperate in working out, that these farm companies, especially those in the hail field that have been dealing with the farmer in one part of his coverage and his growing crops, can assist very materially when the corporation is set up in the practical working out of the insurance plan in the States. in

Senator POPE. Do any of these companies insure against tornados? Mr. GRUHN. Yes, there is tornado insurance, and windstorm insurance, but the information that I have is based purely on the hail insurance, and I was interested to find that in the States I have mentioned, and the greatest volume of data comes from Iowa. ...'

Senator FRAZIER. That is on buildings and not on crops, of course.

Mr. GRUHN. These companies that I am speaking of have not sent me the information if they do write tornado insurance on farm buildings, and what information they have sent me is on hail insurance, and in connection with hail insurance on growing crops.

Senator FRAZIER. We have had tornado insurance on buildings in North Dakota.

Senator POPE. That applies only to the farm buildings?.
Senator FRAZIER. Yes.

Mr. GRUHN. But the 13 companies reporting to me, reported on losses on hail insurance and in the last 6 years just in the limited territory, of three and a half million dollars. I would guess that there is only a small volume in connection with wheat, in that amount, but I think, of course, these exclusively hail companies that have been built up by farmers and have served farmers in this capacity for many years, are naturally somewhat concerned as to the effect: of the program, on what they have built up, but nevertheless, as the gentlemen back of me will testify, they appear perfectly willing to cooperate with the Department, and with the committee, and I am sure will cooperate with you in an attempt to work out a satisfactory program.

Senator POPE. I suppose that if this should interfere with their hail business, since they are losing a substantial amount of money, they wouldn't very seriously object.

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Mr. Gruhn. That wasn't the amount of losses, from the standpoint of the statements, the financial statements side of the companies' operation, and the amount of losses paid to growers covering hail during that period.

You will understand that these farm companies are nonprofit companies, operating principally on the assessment plan. Their expense ratios are very low, and their principal outlay is in connection with losses, such inspection services and adjusting services as go with that.

Senator POPE. The losses refer to the losses paid. · Mr. GRUHN. Yes. They have found, at least some of the farm companies' secretaries, report to me the very natural inclination to insure at times when there has been a disaster, and ride along at other times, and the sale problem, of course, has been a very difficult one, even in that limited connection. So rates do play a very important part, and the natural inclination of the individual to take a chance does also.

Senator SCHWELLENBACH. Do you know what the loss ratio was on that?

Mr. GRUHN. Over all companies?
Senator SCHWELLENBACH. Yes.
Mr. Grunn. No, I don't know.
Senator SCHWELLENBACH. Do you know on any of them?

Mr. Grunn. I haven't--you see, you can't determine exactly in the case of a farm company, operating on the assessment plan, because you would have to project the rates at which it writes its coverage, to what is determined or declared to be the manual rate. They don't collect the full-so-called full premium in advance, as do the stock companies, on which basis you can determine a loss ratio.

Some of these companies assess after the loss, on the policyholders, or some collect a deposit in advance, and make up the difference, and some make assessments every year, or every 2 years, or every 3 years, out of which funds the losses are paid as they occur.

Senator POPE. Now, Mr. Gruhn has offered very generously to supply the committee with any data that he has, or he can obtain, and I wonder if the members of the committee have any thought as to just what data would be of help to us here. I was anxious to have this general statement of Mr. Gruhn, as to the attitude of his companies, and as to any opinion that he might have on this sort of operation.

Does it occur to any of you that we might benefit by any further data from his companies ?

Senator SCHWELLENBACH. I would like to ask him about this:

Mr. Gruhn, we have had some suggestions made to us that might be thought desirable in certain parts of the country, to add other agricultural products than wheat, and the testimony of the Department is that the statistics that they have on other crops are meager, that is, that they have available at this time, and they feel that they have on a sufficient basis as far as wheat is concerned, or at least, will have by the middle of the year, to prepare to start in 1938.

I would like to ask you as an insurance man the extent to which you consider it important in proper underwriting to have this data.

Mr. GRUHN. We have said from the beginning, and I believe I made the statement at the meeting with the President's committee, that it was the part of wisdom to limit the prorgam in the beginning to that.crop, in connection with which the greatest volume of data was available.

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