ing member and sharing in the profits of the business. In this way a very much larger share of the nation's capital contributes to the work of Lloyd's than would be the case if transactions had to be limited to the aggregate personal resources of the members.

(6) To economize in time, especially where insurance is placed in distant markets, various groups of underwriters now organize themselves into syndicates and fully authorize some syndicate manager or agent to act for them as a collective group. This manager or agent is empowered to accept a stipulated volume of insurance on any given risk, which is then apportioned among the members of the group according to the terms of the syndicate agreement. To illustrate, the writer has before him a policy calling for a total of £7,650 insurance. This amount was assumed by 249 individuals, organized into 24 syndicates. Each group is represented in the policy by a stamped endorsement (the 24 endorsements being scattered over the vacant portions of the policy), containing the names of the members, the proportion assumed by each member, and the signature of the agent or manager. It may be added that the largest amount assumed by any group was £1,600 and the smallest assumption £10, while each of twelve groups underwrote only £125 or less. The following two examples, selected from the aforementioned 24 instances, will illustrate the nature of these endorsements:

American Lloyd's Associations.-Aside from the business conducted by Lloyd's of London there is very little individual underwriting in the United States. In fact, the practice is limited in a modified form to a comparatively small number of American Lloyd's associations, and even these are declining in number and importance. While named after their more illustrious prototype, their organization is radically different. They may be defined as voluntary partnerships in which each member usually agrees to hold himself individually liable for the payment of losses on a given line of insurance up to a specified amount only, although in some instances the individual liability is "unlimited." In most cases, therefore, the value of the insurance depends upon the financial strength of the individual members in the partnership, though in some instances greater security is offered in the form of a guarantee fund which is available for the payment of losses. These organizations also fail to give to the insuring public the benefit resulting from the strict disciplinary code and the financial guarantees imposed upon its members by Lloyd's of London. It should be added that the policy is issued for all the members constituting the association by their joint attorney.

Self-insurance.-To complete our list, reference should be made to the practice of self-insurance by certain owners, principally large corporations. Self-insurance means that there is no transfer of the risk to an outside independent underwriter. In one sense the owner may be considered as "running his own risk," yet it would be more accurate to regard any real plan of self-insurance as based upon scientific considerations rather than upon haphazard guesswork. Safe use of the plan is limited to the following conditions:

(1) The number of units of property owned must be so numerous and so evenly distributed in value as to make the law of average applicable. Even where the advantage of numerous risks presents itself, careful owners usually self-insure only the less valuable items and use outside insurance for those units that are so costly as to make a single loss sufficient materially to exhaust the self-insurance fund, or otherwise cripple the financial standing of the owner.

(2) Where the units are sufficiently numerous but nevertheless very valuable, self-insurance may be limited to the assumption of only part of the value of each unit, the balance being insured with outside insurers.

(3) The owner's self-insurance fund should be created gradually, and there should be an avoidance of a sudden transfer from outside insurance to self-insurance. The method pursued should consist of a gradual decrease in the liability insured in outside agencies and a corresponding increase in the self-assumed liability. To make a sudden transfer from 100 per cent outside insurance to 100 per cent self-insurance is very unscientific in that a loss of large proportions in the early stages will much more than wipe out the self-insurance fund. It takes time to build up such a fund, and successful accumulation is dependent chiefly upon good fortune in not meeting

with a staggering loss in the early stages. Even where a fund has been gradually built up to an adequate total, it is the policy of some corporations to continue adding thereto. The fund is regarded as an invested asset, to be used for the payment of extraordinary losses, should they occur, or for some other purpose like the maintenance of dividends during periods of business adversity.

CHAPTER VI

AGENCY AND BROKERAGE

Importance of Agency in Fire Insurance.-American fire insurance companies found it necessary, owing to the vastness of the territory which most of them seek to cover, to develop a comprehensive and well-organized agency system. It is through agents that the companies reach the insuring public and secure the business upon which they exist. By far the largest share of fire insurance in the United States is written by many thousands of local agents stationed in the numerous cities and towns of the country. Each of these local agents represents one or more companies in his particular locality, and is authorized to countersign and issue policies, and to collect premiums.

The company usually gives its agents written instructions as to their authority.) The authority thus conferred is very broad, although restrictions are generally imposed with reference to such matters as prohibited risks, line limits, etc. To a large extent the company must depend upon the local agent's judgment concerning the moral hazard and the selection of risks, and upon his knowledge of local conditions. The company is also dependent. for its share of business in the particular community upon his personal work and his ability to compete as a solicitor. The local agent must obtain and hold the business. To this end he should possess a good understanding of the policy and the numerous endorsements commonly used,