Expenses of Administration—Good and Bad Years-The Gross Surplus-The Work of Fire Reserves-Division into UNIVE, OF CALIERES CHAPTER I. THE FIRE INSURANCE CONTRACT. THE science of fire insurance is a purely experimental one. The main principles have been determined by the experience of rather more than two centuries and are for all practical purposes fixed. The practice on the other hand varies very much and must continue to vary. The conditions under which insurances are granted, and the rates of premium which are charged, must be determined by the circumstances existing at a particular date, and no special permanence or weight attaches to the decisions of any generation of fire underwriters. That is one of the principal reasons why an open mind and an observant imagination are so necessary. Fire managers must be ready and prepared to take the world as they find it, and, if possible, to anticipate the needs and requirements of the public. The principles of sound finance are permanent and cannot be transgressed with impunity. We have then to deal with two fixed quantities—the principles of insurance and the principles of finance —and with one highly variable quantity, namely, the practice of fire insurance and the means whereby fixed principles are suited to the necessities of chang ing conditions. The variable and purely experimental character of much of fire insurance indicates how important it is that the past should be studied as well as the present if we want to discover the reasons which underlie both principles and practice. It is also highly desirable to remember that fire insurance is only one among many branches of insurance business. Viewed by itself much is perplexing, but when we compare it or contrast it with marine insurance -which most nearly approaches it-we can without much difficulty trace both principles and practice home to their causes. I say marine insurance because life and accident business do not deal with commodities which can be valued. Human life and human health cannot be assessed as we can assess the value of a house or a ship or the contents of a warehouse. Human beings are therefore allowed, within limits, to put their own valuations upon their lives and upon the disadvantages they would labour under should an accident disable them. Life and accident policies are in no sense contracts of indemnity. They are contracts for definite fixed amounts payable in certain eventualities and provided that the eventualities can be proved the amounts become payable automatically. On the other hand fire and marine contracts are in their essence contracts of indemnity and in both classes of insurance it is necessary to determine what loss has been suffered by the insured and to what measure of indemnity he is entitled. With all respect to the able practitioners of life and accident insurance I must express my conviction, based on some acquaintance with the different classes of business, that fire and marine insurance are infinitely more difficult and demand much higher qualities in underwriters if they are to be practised successfully. From the point of view also of a student-and in these matters I, by the nature of my profession, am perpetually an observer and student-these classes of insurance are immeasurably the more interesting both on account of their difficulty and the manner in which the circumstances under which they are carried on constantly vary. Although my main purpose is to deal with fire insurance I shall from time to time illustrate what I have to say by a reference to the kindred business of marine insurance. A PERSONAL CONTRACT OF INDEMNITY. The first principle of fire insurance is this: that the insurance contract is one of indemnity for actual loss, and that it is a personal contract between the company granting it and the person to whom it is granted. The person insured need not be the owner of the object specified for insurance, but he must have a direct financial interest. The insurance does not cover a building or goods as such but is an indemnity to the person interested in the building or goods. That is to say, if an owner or mortgagee of a house parts with his interest the insurance does not automatically pass to the new owner or mortgagee although in practice a transfer of the policy is commonly arranged. The |