ance in a complete program was to protect farmers from losses that may be the means of dragging them down to where they had to be protected against want.

Nothing was actually done by the Japanese Government at that time, because they in their consideration of the subject encountered the difficulties that have been encountered in other considerations of the problem, and those two major difficulties have been getting sufficient material to serve as a basis for actuarial determination of insurance coverage and insurance rates; and secondly, handling the administrative end of crop insurance without prohibitive expense.

It is well known that in a number of fire-insurance companies and hail-insurance companies, that administrative expenses consume as much as 30 or 40 percent of the premiums paid in, and only the balance is actually used in the payment of losses.

Under private attempts at administering crop insurance on any such scale as is proposed here, that would be one of the problems in administering the business-procuring the business, and then taking care of the inspections and adjustments without prohibitive expense. It is felt at present that, while the situation may not be ideal, we do have in this country some advantage over what we have ever had before. In the first place, as a byproduct of the agricultural adjustment program there have been accumulated a good many hundred thousands of records on individual farms, and, secondly, in the course of carrying out the work of that administration there has been built up among the farmers themselves a machinery that has never been available before, and it has improved considerably in the course of 3 or 4 years in its effectiveness.

Now, it is felt that at present there are those two additional advantages over what have been presented in the past, when crop insurance has been considered. And as you perhaps well know, the subject has been deliberated on in the United States for the past 15 years, or since 1922 or 1923, but there were these two almost insurmountable obstacles at the time.

Now, I am going to discuss with you first the application of this triple A data that has been made in the studies we have conducted with wheat in getting at a basis for crop insurance.

Many of you have perhaps noted, or if you refer to the hearings in 1923 you will note the testimony of President Bissel, of the Hartford Fire Insurance Co. with regard to their efforts at getting a basis for determining insurance coverage and rates, and he says very distinctly in his testimony there in 1923 that the basis that they attempted to use would not do; that it was an expensive experiment and he was satisfied that that basis would not work. For that reason we attempted to see what could be done with this triple A yield data.

Now just a word which will perhaps clear up still further a question that has been brought up. It is asked a good many times, what about including other crops? We did start work with the three crops corn, cotton, and wheat feeling that whenever anything was done they would perhaps be the crops to receive first consideration, because of their extensiveness, without having any idea at the time when anything might be done, other than merely getting material ready.

We started only in a small way in January 1936 with a few counties. It was July 1936 before funds were available for carrying on the work on an extensive scale, but we started with the three crops at that

time. Then as it became evident that there might be a desire to actually do something as early as 1938, it became a question of how much could we finish by, say, the middle of 1937, because that is when the work would practically have to be finished on any program that was going to be carried out in 1938.

Well, it was decided to go ahead with the three until there was some evidence as to the respective interests of the different groups in the crop-insurance program. So the work was carried along on all three commodities until a meeting of farmers here in November, where it was made very clear by the farm representatives that were here that the greatest interest in the subject was in the wheat belt. Then it was felt that if anything were to be done as early as 1938 it would be necessary to concentrate on one crop.

You perhaps appreciate, or any insurance man can tell you, what a tremendous task it is to get together actuarial data in sufficiently accurate shape to base rates on in a thousand or more counties, and do it within a 12-month period.

So we saw that it would be necessary to concentrate. Since the wheat people had expressed the most interest in the subject it was felt that the first concentration had better be on wheat, and when that was out of the way, then proceed to other crops. That is how it came that after November the work was confined to wheat, with the idea of getting it completed by July 1937.

During that time we did work up about 228 cotton counties and something over 140 corn counties, but since that time we have concentrated on wheat in order to get the job done.

You may be interested in knowing that with a force at present of about 52, the expense of the actuarial work runs between seven and eight thousand dollars a month.

I think as we discuss this data you will see the necessity for breaking this material down into at least a county basis, and even using the individual farm basis to some extent.

I have brought some tables along here. They are in the President's report, but I thought these would be handier to use.

The first problem I mention is that of getting an actuarial basis for determining the rates of coverage and the premium rates that were to apply.

This table is just an illustration of an individual farm, showing the yield for 6 years, and those 6 years are 1930 to 1935, inclusive.

That immediately raises the question in your minds as to why those 6 years, since included in those 6 years are some as bad crop years as we have had for a long time. The reason for taking that period as a starting point is this: That is the period for which we have data on thousands of individual farms. It would be ideal if we had the same thing on each farm for a 20-year period, but that is the only period for which we have the data on the individual farms.

The rates worked up by the private companies in the past have been based almost entirely on county average data. If you were insuring only that a certain county would get a certain yield, those data would apply, but since you are making contracts with the individual farmer and pay losses to the individual farmer, those county average data almost invariably give you rates that are too low. You can have a certain county production as a result of a few bushels under on each farm, in which case you may not have to pay very

many losses; or you can have the same county production as a result of the decrease coming almost entirely off one-quarter of the farm, and then you would have heavy losses on those farms.

That is the necessity for getting down to individual farm data.

As an example of the procedure you will notice the yields on this particular farm, 8 bushels, 15 bushels, 4 bushels, 10 bushels, zero, or complete failure, then 11 bushels [indicating chart]. Or a total of 48 bushels for the 6-year period, or an average of 8 bushels per year. Now, the question arises, Why not insure that average yield of 8 bushels?

One of the criticisms offered to crop insurance is that it would insure a man the production that he gets over a period of years anyway, and since he is insured that much, why worry? The answer to that objection is underinsurance. That is one of the things, of course, we have to do in working out a plan of crop insurance, is to try to work out practical means of avoiding what any person could sit down and write up as reasons why it would not work in 20 minutes. They could write up a good many reasons why it will not work, but the practical problem is working out the means of getting around those difficulties and the objection of encouraging careless farming is answered by underinsurance.

Senator POPE. That was one of the points that this German economist stressed in his report 75 years ago, was it not?

Mr. GREEN. Yes.

Senator MCGILL. If he is insured for the full aversge yield for the preceding 6 years, for instance, he might not try to raise as much per acre as he otherwise would.

Mr. GREEN. That is right, and that is why it was felt that the average coverage then should be a certain percentage of that average yield.

Now, the question was what percent? Well, some of the hailinsurance men, and fire-insurance men, tell us-and of course, it is an estimate with them but it is a result of their experience-that the moral hazard, amounts to about 10 percent. The Bureau of Plant Industry tells us that 25 percent would be sufficient, to allow for ordinary losses from plant disease such as any farm may have, except rust. Damage from gophers, where even though farmers do try to eradicate them, there will be a few, and other such ordinary small losses it is felt will be taken care of by the 25 percent of the risk which the farmer carries, so that the 75-percent coverage will insure only against unusual hazards.

Of course, rust is one thing that will be insured against. So one coverage determined upon was 75 percent of the average yield.

Now, it is possible that there will be recommended to the corporation-it will be up to them as to what they want to do-two possible coverages, a policy that carries a 50-percent coverage and one that carries a 75-percent coverage, depending on the choice that the farmer makes.

The purpose of recommending that is to give the man who wants only the 50-percent coverage the advantage of the much lower rate that it will mean in a lot of territories. We have been told already by some landowners in territories, say, like Iowa and Illinois, that they were willing to take the ordinary fluctuations in yield. The thing they would be interested in being protected against would be a complete failure, or almost complete failure, where it would require

them all at once to raise the cash with which to meet taxes, interest payments and principal payments and so on. That they would prefer carrying the minimum coverage at the lower rate.

Then it is felt that the 75-percent coverage which carries the higher rate would serve the man who is perhaps rather heavily loaded up with debt, his obligations are large, and he would need the coverage to protect himself against those things that might cripple him should he get 1 or 2 years of loss in succession.

In

You will notice then in this table that the third column there simply illustrates the coverage based on the 75-percent plan. Since this farm has an 8-bushel average yield its coverage would be 6 bushels. You will note that the last column in the table before you simply indicates the indemnities that would have been paid per acre. 1930 there would have been none on this farm, because the farmer was covered for 6 bushels and he produced 8. In 1931 he was covered for the same 6 bushels, of course, and produced 15. In 1932, however, he produced only 4 and he was covered for the 6, therefore he had 2 bushels indemnity coming to him.

In 1933 he produced 10 bushels and his coverage was 6, so he had no indemnity that year. The next year he had a complete failure, and of course the indemnity was 6 bushels.

The last year, 1935, there was no indemnity.

The indemnities, of course, add up to 8 bushels, which divided by 6 gives us 1% bushels. This is the bushels an acre a year that would have to be laid by to cover the indemnities on this particular farm. That is what he would have had to lay by to cover probable future losses.

Now that, we say, would be the premium rate based solely on the experience of that individual farmer, but it is felt that would hardly be a fair rate to apply in the policy-merely basing it on the experience of this one individual farm.

So, to make what looks like a more practical rate, the proposal is to take the rates determined in a somewhat similar way for the whole county, as explained in the paragraph below the table, where we took 75 sample farms out of a county and calculated the rate for the county in which this farm is located. You will notice at the bottom of the page that for the county the rate comes out one bushel per acre. In other words, this particular farm on the basis of its own experience carried a little higher rate than the county average. Next the two rates are added together, which gives you 2% bushels, and the average of that is 1% bushels. That would be the rate that would apply, based on the individual farm experience and the experience of the county in which the farm is located, taking into consideration only the '30 to '35 period.

Now, it is necessary after this, you see, to make one more adjustment, because the 1930-35 period is not representative in all sections. in Kansas, for instance, the 1930-35 period, if you take Sumner, Sedgewick, and Reno Counties-some of those counties where they had a good crop in 1934-you have a section where not so much additional adjustment is needed. The 1930-35 period is just about in line with a 10- or 15-year average of those particular counties.

Take the southwest Kansas counties, or a number of your North Dakota counties, and from these triple A records alone you can note very easily that the 1930-35 period is abnormal compared with

a longer period of 10 years. So it is necessary to take a period, for instance, from 1926 to 1935, a 10-year period, and on the basis of the county averages for that period as compared with the county averages for the 1930-35 period, to make adjustments.

We are having to do that county by county.

The purpose is to have this data for the counties gotten up like that one, all printed and ready in the State office, so that when an application comes in from an individual farm, like we were talking about a minute ago, for approval, they can check the data on his farm, and if it is in Barton County, Kans., for instance, they merely turn to the rate table and there is the rate already fixed for Barton County. There also is the correction factor to be applied in order to put the 1930-35 basis in line with a longer period. The State office simply determines the rate on the basis of the individual application, showing individual yield information, averages it with the county figure, and applies the correction. That is the rate and the coverage that is written into the policy, which is returned to the local office, and if accepted by the farmer, he is ready to pay his premium.

Senator SCHWELLENBACH. When will he pay his premium?

Mr. GREEN. It is recommended that he pay the premium at the time he gets his policy. That question has been up for discussion. We discussed it with a group of farmers who were in here. Of course, that will be a matter that will have to be finally settled by the corporation's administration when it comes up.

The question has been raised as to what are you going to do in a case like this. Say you put in a program for wheat, and this summer there are a bunch of farmers who do not have the money or do not have the wheat but they want to insure their 1938 crop. How are they going to handle it?

There are two sides to the proposition. One view is if the farmer didn't have any insurance at all, the status we are in now, what would happen to him? Well, either resettlement or production credit or the local bank, or someone would be making a loan to him to get in his crop. If he is in the worst position it might have to be resettlement. Now, since they are going to advance the money anyway, wouldn't it be to their interest, as well as to the farmers that they have that crop insured, rather than advance the money under the condition under which it is now advanced without any insurance?

Therefore, shouldn't they be willing to advance the premium money for it?

Senator POPE. And they would probably take a crop loan?

Mr. GREEN. Yes. Now, the other view is this: If the procedure just described is not followed and you sell the insurance on credit, then the insurance administration has three major problems to deal with: crop insurance, grain storage, and the credit business and in connection with the latter will have the job of collecting.

Now, in order to simplify operations which will be complex anyway when the thing grows to an extensive scale, it was thought that, if possible, it would be best to keep it out of the job of extending credit. There are both Federal and private agencies already extending credit. It would be advisable it seems for them to do that job.

Senator SCHWELLENBACH. Isn't this true: If a farmer goes to a bank to borrow money on his buildings, for instance, the banker not only is willing but insists upon loaning him enough money to pay the insur