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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 harvest

ing:

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 bail 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?

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Mr. GREEN. With the land.

Mr. RUTLEDGE. It is to go with the land. Well, that would take care of it, of course.

Now there are probably a number of other things that I might say, but I would rather, if there are any questions on these things, or suggestions, I will be glad to answer them.

Senator POPE. I think we are very anxious to have any difficulties pointed out in the administration of the act, or any objections that may occur to you, or anything else that would be of value to the administration.

Mr. RUTLEDGE. There is one thing that occurs to me in the administration as this bill is proposed which our experience would say was a mistake. I am reluctant to suggest it because I might be misunderstood. It has been suggested that the details of this be administered by a local committee that is, to a certain degree adjusting claims and determining the maximum yield basis for each farm.

Senator POPE. The average yield?

Mr. RUTLEDGE. The average yield basis for each farm. Gentlemen, human nature is a thing that we have to respect. It exists and it is natural and it ought to be there. It is awfully easy, we have seen it done in our business right along where we attempt anything of that nature—it is awfully easy for this local man to see his neighbor in a considerably different light than he sees some man off here a hundred miles away.

Now, I am afraid that if you go too far with that local committee in power you are going to have an average yield in various counties that is far in excess of the actual record of yields, because, as I understand it, you are to take the record of average yield and the individual record and strike a medium between as your average, as I understand it.

Senator POPE. Yes.

Mr. RUTLEDGE. Now they can set the individual record up so high that it will bring that medium so much above the actual record—for instance, we have in Iowa just the same as this—we have in Iowa a record of the annual average corn yield in every county in the State, and that is made on this same basis. It is made from asking everybody—the assessor asking everybody what his crop made, an actual record. It is not someone's estimate of what it will make or something of that nature.

In Iowa, for instance, on corn—I don't want to say this exactly, but it is very close to correct—I don't think there is any county that will show an average annual corn yield of more than 40 bushels to the acre, and yet there is any number of farmers that will honestly swear that they have raised 60, 70, 80 bushels, and probably they have, but it is just on some fields.

Senator MCGILL. Your assessor when he goes around assessing the farmers, he has them make a declaration as to how many acres they planted in a given crop and how much that crop is supposed to do per acre. Can you tell us what time the assessor in Iowa takes this census?

Mr. RUTLEDGE. He begins right after the first of the year, we will say the latter part of January and February.

Senator McGill. He makes his assessment, doesn't he, as of a certain day in the year?

Mr. RUTLEDGE. Yes, as of January 1.

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Senator McGILL. Well, does he take the statement of the crop planted the preceding year?

Mr. RUTLEDGE. It is the produced crop the preceding year. The tax is based on that.

Senator McGill. So the farmer would know exactly, or should know approximately, how much per acre he raised?

Mr. RUTLEDGE. Yes, it is what he raised the previous year, not what he expects to raise. Of course, that same thing would apply when it comes to adjustments of determination of loss.

Senator POPE. What percentage of farmers do you suppose would exaggerate the yield for the year before? Do you think any substantial percentage would? It seems clear that some of them would, but I am wondering if a sufficient number would exaggerate the yield to make very much difference in determing an average yield in the county.

Mr. RUTLEDGE. Senator Pope, you have asked a very frank question. I am going to give a frank answer, but may I say first that I am close to the farmer. My business is all with him. All my family and myself own land and have been dirt farmers. There is no greater percentage of men that are wrong in the farming industry than there are that are ministers or insurance men or anything else. I would say to you that the frank answer, based on experience and on a conclusion as talked by the other men in this industry, that you would find that would be about 15 percent. That is when it comes to overestimating the yield now. If you were to go and ask them, you understand-just go right out and ask them- if it was under oath, that would reduce it somewhat. There is no question about that, in my opinion.

Senator McGILL. This local committee, instead of just taking estimated yields, as I understand it, is supposed to ascertain just how many bushels the man raised when it is threshed. It is not to be based on an estimate?

Senator Pape. Wouldn't the fact that you have a local committee made up of farmers in the locality, who know pretty well what their neighbors are doing-wouldn't that fact perhaps tend to cut down this exaggerated statement of yield by the individual farmer?

Mr. RUTLEDGE. I rather think the Agricultural Department now has a contact with a local committee that is of a high type. I don't think there is any question about that. The only point I was trying to bring out is that there was that situation. Now, there is no doubt but what the personnel of that committee, and so forth, will greatly reduce the risk there. It is my purpose to try and bring out some of the things that you are interested in.

Serator POPE. We are glad to have these suggestions, because those who administer the law may then guard against those difficulties. ;

Mr. RUTLEDGE. Ard unfortunately the men with whom I have been associated have, I think, for fully 40 years had under consideration a program as a private venture, a program of crop insurance. They have studied it very carefully.

Senator Pope. We would be glad to have you tell us about that. Mr. RUTLEDGE. They have studied it and analyzed it, and so far they have not been able to work it out as a private venture. Now, understand the Government is ir a different position than private industry. They have not been able to work out so far anything that they felt would be workable as a private venture.

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