ies writ

Hail liability and loss, 1915–33, inclusive, of all fire insurance companies writing hail insurance in Nebraska-Continued

Reti

Scotts Bluff.

2,078, 025

168, 415

8.10

Sheridan
Sherman.

Sioux
Stanton.
Thayer..
Thomas.

2, 173, 209

270, 091

12. 43

2,212, 516

117, 976

5.33

55

No. 87

Thurston..

2,695, 774

39, 428

1.46

Senator POPE. Now, with reference to the sheet you handed me containing figures, did you include all of these figures in your testimony?

Mr. RUTLEDGE. I did, sir. That is not the same kind of a record, you understand. It is not a tabulated record. It is not exactly a conclusion but it is a fair determination from experience.

Senator POPE. I think it will be unnecessary to make further use of this, then, if the figures are already in the record.

Mr. RUTLEDGE. Now, Mr. Chairman, I have just read the bill this morning. This is the first time I have seen it, and as I have said, the mutual insurance industry feels that they can offer no objection to the bill. They want to cooperate with the Government. I do notice in this bill one or two things, however, that from experience I would like to suggest maybe there should be some change made. Senator POPE. We will be very glad to have any suggestions you care to make.

Mr. RUTLEDGE. I think I realize, probably, the purpose of the particular section 4-A, and respect the purpose; however, it seems to me that in this board of directors, if it is left three men from the Agriculture. Department, that it would be beneficial to the corporation to enlarge the committee to five, or at least four, and add to it one man representing the insured, that is, the farmer group. It may be advisable to add to it a man representing, from the experience standpoint, the insurance phase of it. That is just a suggestion. I am not trying to say that it should be done, but it seems to me that it might be to the advantage of the corporation to have, either as part time, not necessarily the whole time, but as a part-time committee, someone from those two divisions. There may be still a third one that I don't happen to think of.

Senator POPE. Are you familiar with the provision in the bill providing an advisory committee?

Mr. RUTLEDGE. I understood that. That might take care of the situation, but as I read it I did not conclude that might cover it if it is found advisable.

Senator FRAZIER. This section 4 provides that the three persons shall be employed in the Department of Agriculture.

Mr. RUTLEDGE. Yes.

Senator FRAZIER. Don't you take it that the people employed in the Department of Agriculture represent the farmers?

Mr. RUTLEDGE. Yes, sir. Don't misunderstand me. I think Mr. Green and Mr. Rowe understand me fairly well. They would not misinterpret it. They represent the Agricultural Department here, but it just seems to me that the knowledge and the advice that naturally would come to those men that are active in that particular industry, a dirt farmer, might have some theory or suggestion that might prove to the advantage of the other three men.

Senator POPE. I think that is an interesting thought.
Senator FRAZIER. I think it is a good suggestion.

Senator POPE. Of course, a local committee, who are made up of farmers in the various sections of the country, will be connected with it and its administration, and we would expect to get the benefit of any advice or suggestions that they would have. The Board would undoubtedly have the benefit of this advice.

Mr. RUTLEDGE. Now then in section 7 [reading]:

The Board may condition the issuance of such insurance in any county or area upon a minimum amount of participation in a program of crop insurance formulated pursuant to this act.

I interpret that that it is not their intention to furnish this class of insurance in any particular area, or possibly county, unless a certain number will participate. Now, I am thinking at this particular moment of my own reaction among the farmers to a plan that requires a certain number to cooperate. There has been a very bad reaction at times to things of that nature. It may be all right for this, but it just comes to me as I run through this that there is a possibility that that would work adversely to the success, and rather that any individual could participate whether others did or not, which might be a more satisfactory idea.

I realize that the purpose of that is that the maintenance of whatever local committee is necessary and so forth and so on, would not be too great a burden in proportion to the volume that might come from that particular territory. I think that that is the purpose of it, but still it can work very adversely if our experience with human nature acts in this as it does in our own business.

Now, in (b) of that same section, "Such premiums shall be collected at such time or times, in such manner, and upon such security as the Board may determine." Now, that may not mean what I have in mind, but there is this about this thing: If experience means anything and I have talked with both the old line people and the mutual people about it-it has been our opinion, and I think we expressed the same thing at the time of the President's committee meeting, that this proposition should be completed as an annual transaction; that is, the premiums should all be collected each year and they should be likewise the losses should be paid each year, completed. Each year should be a complete year by itself. That may take care of that, but it just didn't read to me as though it was a feasible plan to do that, and I know that there was at one time a suggestion that there might be some way to carry over the premiums to another year. Well, I think you are placing a man in a rather extra-burdensome position if you do that. That has been our experience. That is all I care to say about the bill itself. other things that I might offer. As I understand it, the thought is to write this insurance in a short period between the sowing time and

There are one or two

the time when normally the crop would come through the ground, or, in other words, to write it before there can be any chance of a knowledge of what the future holds for that crop.

I think that is very important, because men are human. There is no reason to think them otherwise, and it is natural for them-of course, they want to take some little advantage if they can—that is, a fair proportion of them, not the majority by any means but a fair portion of them, and our experience has been that, and I rather think that of course, it is not part of the bill itself, a definite statement concerning that, but I rather think that question of seeing that it is written before there can be any possibility by the insurer to determine the possible future of that crop is going to be important to the Government's program.

Senator FRAZIER. What do you do on your hail insurance there? Mr. RUTLEDGE. In our case we work from an insurance-policy value. The question of yield has nothing to do with it in our business.

Senator FRAZIER. But I mean at the time-when do you put on your insurance?

Mr. RUTLEDGE. Any time from the time of seeding until harvesting.

Senator FRAZIER. They can put insurance on at any time?
Mr. RUTLEDGE. Yes.

Senator MCGILL. They put on a certain amount of insurance per acre?

Mr. RUTLEDGE. Yes.

Senator MCGILL. And you say according to the percent of loss? Mr. RUTLEDGE. Yes. Here is an example. We will say that a man places on a value of $20 an acre, or takes that much insurance on his wheat crop, and of course that will cost him, under the rating, so much in a certain territory. Now, should loss occur to that crop it does not make any difference whether that crop would make 1 bushel to the acre or 30 bushels to the acre; it is worth $20 per acre. If he loses half of what was growing there he is entitled to half of that money. He had paid for that much money. So it is a different scheme.

Senator MCGILL. If he loses 20 percent you pay 20 percent of the amount insured?

Mr. RUTLEDGE. Correct. Of course, the Government, I think wisely, has decided that they cannot operate from a value standpoint; in fact, the experience that they had and I am familiar with that experience which the stock companies had the consensus of opinion from that experience is that the failure there was because of an attempt to insure value as well as yield, and probably that is true.

Senator FRAZIER. And North Dakota June 15 is the limit that they can put on their insurance, or take it off before June 15.

Mr. RUTLEDGE. That is the State insurance?

Senator FRAZIER. The State law, yes.

Mr. RUTLEDGE. You see, gentlemen, we have State hail insurance companies in a number of States, and really they have never been detrimental to the private insurance business at any time that I ever knew of. We operated in competition with State hail insurance in Nebraska and also in South Dakota, and there was no interference that we ever discovered, even though in some instances there appeared

to be a much lower rate, but the State seemed to be correct from our experience, even under that circumstance. We still had no difficulty from a competitive standpoint.

We have had no objection and we operated a company in Canada at one time in competition with Government, or out there it is Province insurance.

Senator POPE. There would be no practical difficulty there if a man suffered a loss due to hail, and he would be entitled to some indemnity under the Government plan, that would have no effect in a practical way with any insurance that he might take with you or any private company?

Mr. RUTLEDGE. No, sir.

Senator FRAZIER. Have you figured on the percentage of farmers in Iowa, for instance, that take hail insurance?

Mr. RUTLEDGE. That has varied quite a little during the last 6 years. Since we had low prices and low yield the volume of hail insurance has been materially reduced. At one time there was 65 percent of the farmers in Iowa carrying hail insurance. I would say that if 25 percent loss were insured it would be a maximum. I never tried to get those exact figures, but it must be at least that low. I am able to determine that from the volume that the various men wrote. Senator FRAZIER. What do you attribute that to?

Mr. RUTLEDGE. First in 1932 was the low market value for the crop. That stopped them right there. If the crop is not worth much they don't want to insure it. The next thing was the questionable yield. Although under the insurance contract it is worth all it is insured for, if it is a poor yield the farmer doesn't see that. He wants to insure a good crop; he doesn't want to insure a poor crop. He feels that he is paying something for nothing if he has a poor crop. Substantially he is paying no more.

Senator POPE. I suppose low prices for his product and the drought put him in a position where he didn't have any money to obtain insurance?

Mr. RUTLEDGE. That has had considerable to do with it. Of course, the mutual men, you understand, take insurance in the spring and collect the premium for it in the fall. They carry it through. The stock companies are adopting that system generally, quite generally, but they used to write for one season only and in advance altogether, and the various State governments that have crop insurance, take hail insurance, they carry it through and collect it through taxation.

Now there is another suggestion about this, and that is that it is the opinion of the mutual insurance men, from their experience, that the Government cannot make this thing as successful as it could be unless they take a term contract. In other words, unless the man carries on for a period of years, and maybe 5 years is sufficient, but if he just takes it this year and stays out next year, and so forth and so on, it will have a tendency to upset the figures which the boys are able to make from an annual average basis with everybody considered. It can't help but upset that. So it ought to be a term contract.

Of course there are many other things that the Government will come up against. It has been said that there is no moral hazard in hail insurance, because a man can't make it hail. Gentlemen, there is just as much moral hazard in hail insurance as there is in any other kind of insurance, and he can make it hail.

There are men in the penitentiary in Nebraska and in Colorado who when they happened to have a poor wheat crop, a poor prospective yield, hitched the horse to the end of the barbed wire and dragged it through the field. That worked very nicely in that short grain, and unless you are experienced you can be fooled on it very easily.

Senator POPE. And some of them are now in the penitentiary? Mr. RUTLEDGE. Yes. I think Mr. Rowe and Mr. Green are familiar with that. They know about that all right. That is, of course, extreme but there are any number of things of that nature that the Government will be confronted with as an added hazard to what their basic statistics will show, quite a little. Their manner of operation, taking into consideration basing their proposition on yield will eliminate partially those things. It will reduce them, but it will not entirely eliminate them, if our experience means anything.

Senator MCGILL. You think they could reduce their yield in that way in order to receive the indemnifying payment which might be contained in the policy, break down the crop?

Mr. RUTLEDGE. You understand your hazard, your program, covers hail loss. They would claim it a hail loss.

Senator MCGILL. Anything that might bring the yield down?

Mr. RUTLEDGE. Yes. In fact, when it is broken down it is pretty hard to gather.

Senator POPE. As you said a minute ago, the fact is that the coverage would not be the total coverage. It may be 75 or 50 percent. That would, of course, cover that.

Mr. RUTLEDGE. Certainly, it will have a tendency to reduce that possibility, but it would not eliminate it.

Senator MCGILL. I am interested in what you say about the necessity for a term contract. How long a contract would you think of insurance should be made in order to make this program successful? Mr. RUTLEDGE. I think 5 years would be sufficient, although I think ten would be better.

Senator MCGILL. But you do not think it should be under five? Mr. RUTLEDGE. No, sir; I do not. There is this about insurance: no phase of insurance of any kind has really had a practical set of statistical figures until they have been in operation 25 years. That is the whole industry. Now we are in the automobile industry today up against that very proposition. Automobile insurance as a general plan has not been active for 25 years yet, and they are just having all the grief in the world with it. They thought they knew something about it from 10 years' experience, but it takes 25 years' experience in the insurance business before you get your practical figures to base your experience on. I don't think the Government will need that long a contract to make this work. I think 5 years will make it work all right, but it would be better with 10, because you have a better average to judge by.

Senator MCGILL. It may be difficult to make a contract for longer than 5 years.

Mr. RUTLEDGE. I think it would be.

Senator MCGILL. It would probably be difficult to do that, especially with the tenant farmers who may not have a lease on land extending over that long a period.

Mr. RUTLEDGE. As I understand it, it is the intention to take the insurance with the insured or with the land? May I ask, Mr. Green?