be insured. Under this system goods in a building would not all pay the same rate, and that the rate of the worst class, as in most systems of rating, but would pay rates graded according to their standing in respect to the three points described. For instance, if pig-lead was in the same building with millinery it would not pay the same rate since the millinery would be charged an additional premium owing to its susceptibility to water and smoke damage. The idea of distinguishing in this way between the various contents of a building and grading them individually according to risk will seem strange to those who have not looked beyond the systems adopted in this country. EXAMPLE OF RATING BY AMERICAN UNIVERSAL SCHEDULE. Now let us take a detailed example of rating by the Universal Mercantile Schedule and see how the various considerations of risk are given effect to. It will, I think, prove a useful stimulus to thought and show how large are the possible applications of scientific rating. I am indebted for this example to Mr. Moore, the Chairman of the Schedule Committee. It is derived from his work on "Fire Insurance and How to Build". Section A.-To get the key or base rate for a building. The key rate for a Standard Building in a Standard City is 25 cents per $100 of insurance per annum. Now assume that additions have to be made for the Absence of standpipe or intermediate reservoir afford- No fire marshal No building law Electric trolley railroad Natural gas for fuel Total 4 2 2 3 2 2 40 From this, if auxiliary steamers are provided, a deduc- 38 Section B.-Now we have to consider what additions must be made to the key rate for the city on account of deficiencies in the building below the standard. Suppose the deficiencies are as follows and that the extra premiums as below have to be charged : Walls, not according to standard . Floors, ordinary Area Stairways Lighting by kerosene Heating by furnace Cents. 2 25 3 10 2 3 27 Result.-Rate of building unoccupied 38 cents +27 cents=65 cents. Now observe that while the considerations in Section B are given full effect to in British tariffs those in Section A are ignored except in those few instances in which towns or certain buildings in towns are subject to special tariffs. There is no general system applicable to all towns such as the one described. Section C.-Stocks. In order to find the key rate for stocks in a building we take the Unoccupied Building Rate and deduct 25 per cent. of the charge for deficiencies below the standard since these affect the building more than the stocks. In this case, as the Standard Building in the Standard City is rated at 25 cents and the key rate for the unoccupied building was found to be 65 cents, the charge for deficiencies was 40 cents (65-25); 25 per cent. of this is 10 cents, and 65 less 10 gives us 55 cents as the key rate of the building for rating stocks contained in it. The deduction of 25 per cent. from the deficiencies is based on the experience that these deficiencies cause a greater risk to buildings than to goods contained in them. Key Rate for Stocks, 55 cents.-If this is a single occupancy building for, say, retail dry goods, we look up this item in the schedule and find that 50 cents have to be added for their own susceptibility to damage. Thus we get the rate for dry goods as 105 cents per $100 of insurance, namely, 55 for the key rate of stocks plus 50 cents for the special risks of retail dry goods. Now take a further case and suppose that the building contains more than one class of goods. Then before rating the goods individually we must add to the key rate for stocks the amount of the highest Here occupancy rate charged on any of these goods, that is to say, the amount by which the presence of these goods increases the risk of the building and of all stocks contained therein. Suppose that wholesale drugs with compounding appliances are also in the building, then they are taken as increasing the general risk by 100 cents, and we have to add this 100 cents to the key rate of 55 cents for stocks in order to get the base rate for charging premiums on the whole stock. The key rate would in this instance be 155 cents. Now the individual risk of retail dry goods is taken as above at 50 cents and that of wholesale drugs at 85 cents-this charge for susceptibility to damage is distinct from and in addition to the general risk increase of 100 cents on the building and on all stocks within it. We should therefore get the total drug rate at 155 cents plus 85 cents or 240 cents, and the total rate for retail dry goods at 155 cents plus 50 or 205 cents. The difference between these total rates on wholesale drugs and on retail dry goods would thus be 35 cents or precisely the same as the difference between 85 and 50 cents, the amounts at which their individual susceptibility to damage was rated. The Occupied Building Rate would be 65 cents (the key rate for an unoccupied building), plus 100, the rate for the increase of risk due to the presence of the wholesale drugs, or a total of 165 cents. The schedule rates are based on a ratio of claims to premiums of 55 per cent. which, with an expense rate of 35 per cent., would show a net profit of 10 per cent. of the premiums per annum. All these considerations for rating stocks individually are quite outside the purview of the British tariffs, where all are rated in accordance with the risks incurred by the worst. I wish that I was able to set up a table showing an example of rating by a British tariff, but as the tariffs in my possession are given to me in confidence I am not able to do so. Enough has been said to show how large is the field for improvement in scientific methods still open to the framers of British tariffs. The Universal Schedule Committee appointed in 1891 representatives of the principal underwriters' associations in the United States and the schedule was completed for practical purposes in 1893. It has been in successful operation in numerous towns and cities throughout the country, notably-New York, Boston, Philadelphia, Denver, Cleveland, New Orleans, Scranton, Pittsfield, Albany, San Antonio and others, and has been, in slightly changed form but with many of the important principles, incorporated in schedules and tariffs throughout the United States. It has a complicated appearance but the example which I give above will show that it is not very difficult to apply once the principles are grasped. It is stated that suggestions for improvement by those who have used it are rather in the direction of adding to its various charges and deductions than of shortening it by omitting any items. The men who have to rate by it would sooner have it longer than shorter. |