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of all their efforts the expense is very considerable. good many items in the expense account of a fire insurance company. The heaviest item is that of commissions. The agent is compensated by a commission upon the premium collected. This has gradually increased. During the past five years, 1899 and 1903 inclusive, the commission charges have increased from 20.59% to 21.32% or a little less than one per cent. This seems large, but it is to be remembered that it is the price which the buyer of fire insurance pays for the privilege of doing business with his neighbor. It may not be amiss to take note of the fact that the money paid for commissions remains in the community where the business originates. A company, using the word company in the sense of the stockholders, does not in any way profit by the commission paid for the business. The company simply enters into an arrangement with a man in a given community to sell its fire insurance policies, to those who desire to buy them. When he has collected the money, the company authorizes him to retain a certain proportion for his services which at the present time will average about twenty per cent. the country over. This money is kept in circulation and is a benefit to the community in that it furnishes employment and support to one or more of the members of the community and thus takes them out of the competition in other lines of activity. This is a commonplace, but it seems to be lost sight of many times by those who assert that all money collected on behalf of these insurance companies is withdrawn from the community and sent to the headquarters of the company. Another item of expense is the charge which the State imposes upon the business in the shape of taxes. This amounts to nearly three per cent. The following table gives the premiums received by the companies reporting to the New York department for a period of five years, the losses paid and the taxes:

It will be observed that the total taxes paid by these companies for the five years is in excess of twenty-four million dollars, which is almost as large as the underwriting profit of all the companies reporting to the New York department for the period of ten years. The taxes are in exact figures $24,274,642, and the profits for the ten years ended December 31, 1903, $27,636,698.

One item of expense which does not attract much public attention is that of inspections by field men, local boards of underwriters and special organizations of technical men in matters of construction and equipment of buildings. Take the one item approving materials entering into electrical equipments. This aids in preventing fires, and it should always be remembered that when a company prevents the destruction of property it helps the public even more than it does itself. Property burned is value destroyed which cannot be restored though the owner may be indemnified for his loss. Every dollar's worth of property destroyed leaves the country that much poorer. The companies paid many millions of dollars to the citizens of Baltimore by way of indemnity, but they did not restore to the country one dollar of the value destroyed. The expense of preventing fires is for the public's benefit and aids not only the State by lessening the amount of value destroyed, but also the individual by lessening this fire loss tax.

Then there are the expenses of supervising the business through field men, the adjustment of losses, and the home office expenses. For 1903, the total expenses of each $100 of premiums was $36.91. The ratio of expenses for the period of 1860 and 1903, inclusive, was $37.81. The expenses for 1903 were nearly one dollar below the average for the entire period of forty-three years. A great deal has been said by persons who have studied the fire insurance problem, and those who have only glanced at it, concerning the heavy expense ratio. Those who have criticised it as unnecessarily large have not given any figures upon which a comparison could be based, between fire insurance and other lines of business. It would be interesting if a table could be prepared showing the expense in different lines of industry attendant upon the process of transforming raw material into manufactured products, and placing the same in the hands of the consumer. Taking the fire loss as the raw material and computing the expense of furnishing the indemnity for the same, it is quite probable that the results would not be unfavorable to the fire insur

ance business. In such a comparison, the premiums collected would not be considered as the basis, but rather the amount of fire loss covered by insurance. The expense would be the expense of distribution. It is sufficient to note this, at this time, without going into the subject in detail. The men in charge of the fire insurance business have made many attempts to reduce expenses and the subject has been under special consideration during the past year and is, at present, a very live question in fire insurance circles. It is not easy to reduce the expenses of a business in which certain customs have become established and certain factors have practically become fixed charges. The commission charge cannot be very materially reduced without entirely changing the system of securing the business. The charges of the State are steadily increasing and the incidental charges will of necessity about keep pace with the growth of the business.

One of the questions much discussed by buyers of fire insurance is that of the premium charge or, as more commonly known, rates. The charge for fire insurance is of necessity based upon the experience of the companies. Whenever the fire loss is heavy and the companies find it necessary to increase the charge, there is complaint of extortion. It is then popular to style the fire insurance companies trusts, and to claim that they are charging a price for the indemnity furnished out of all proportion to the loss outgo. It may be fairly stated that the normal tendency of fire insurance rates is downward; that when the companies have a series of unprofitable years great difficulty is found in increasing the rates; that just as soon as the fire loss lessens, the rates begin to go down again. The competition is so sharp between the companies that just as soon as conditions will at all warrant it, the premiums are reduced to as low a point as is consonant with safety. Given a series of four years of profitable conditions, and fire insurance rates will be reduced in spite of all that any man or set of men in the business can do to prevent it.

There is a good deal of supposition and imagination indulged in in the consideration of the average premium charge. Take the companies reporting to the New York insurance department for the period from 1871 to 1903, inclusive. In 1871, the average rate of premium of the 177 companies reporting to that department was $.9432 per hundred dollars of risk. In 1903, the average premium of the 147 companies reporting to the department was $1.1874. The average

for the entire period was $1.0228. The variation between the first year of the period and the last year of the period was $.2442. This shows that the average rate has not varied anywhere near as much as the criticism of those who have not looked into the subject carefully would indicate. The companies are always endeavoring to induce property owners to make such improvements in the risks and take such steps in the matter of fire prevention that the fire loss may be reduced, and when this is done the rates promptly respond to the improvements. One of the important organizations of the business is the National Fire Protection Association, composed of experts who have given much attention to this phase of the business and who are doing a great deal to bring about a more perfect system of fire prevention and fire resistive construction and thus directly serving the buyers of insurance indemnity.

The question of rating is a troublesome one, from whatever standpoint it is viewed. The ultimate rate has to be based upon the experience of the companies. Attempts have been made to find a better system and improvements have been brought about in this particular. The trouble has been to find a system sufficiently flexible to provide for increases and decreases without resorting to flat reductions or flat increases. Whenever it becomes necessary to impose a flat increase in order to increase the premium income sufficiently to provide for the fire loss, there is always friction. To avoid this has been the object of those fire underwriters who have given special attention to the question of rating. The latest attempt and the best, so far devised, is one prepared by Mr. A. F. Dean, of Chicago, entitled a "Mercantile Tariff and Exposure Formula for the Measurement of Fire Hazards," which is in quite general use in the Western States. This plan divides the cities and towns into six classes, the sixth class being villages which have 'no protection. An ordinary one story brick building in a town of the sixth class is the basis. This tariff does not attempt to name what is known as a basis rate. Given a basis building, the rates are worked out for each town or district so that when the time comes to readjust rates, they can be readjusted without the necessity of overturning an empirical basis rate. Given this basis in a town of the sixth class, the additions or deductions are made for good or bad features of construction. These additions are made upon what are known as the percentage plan. The rate for the contents is determined by

a differential added to the building rate. This tariff also includes an elaborate system for determining exposure hazards and charges. This is not the place to enter into a discussion of the Dean tariff or of any other fire insurance tariff, but the topic is briefly noted for the purpose of showing that the underwriters are trying to find the best possible means of formulating rates so that they will fit conditions and produce the least possible irritation when changes have to be made. The whole question of rates is exceedingly complex. While the ideal is far distant, progress is being made. To understand the difficulties surrounding the question, it is worth while to pause and take a brief glance at the problems of the rater. A company is doing business in forty different commonwealths. The conditions are not alike in any two. There is a certain fire loss, the burden of which is to be distributed over these States. It must be distributed with regard to the total aggregate, but this factor is to be modified or, at least, influenced by a group of perhaps a dozen sections. The company has to take note of its entire business. The proportion of the fire loss to the different sections will have an influence upon the construction of the rates for that section, but it cannot be determined upon the section alone, because reference must be had to the whole. Then, again, there are almost innumerable hazards and the same general kind of a hazard is not just the same in all the sections. For instance, a mill in New England turning out the same kind of product that a mill in Illinois or a mill in Georgia does will not have the same physical factors that either of the other two have. The variations must be taken into account. This shows the complexity of the problem and the difficulties under which those labor who make the rates. When it is all taken into account, the wonder is not that the rates are unscientific or a rule of thumb, but rather, considering all factors, that so much progress toward a scientific basis has been made and so much fairness used in treating all the parties concerned.

The public complains of fire insurance rates more than of interest charges. The man who protests most volubly of his fire insurance rate may have borrowed money on a call loan. The bank notifies him of an increase of rate if the loan is not to be called. He pays the increase and makes no complaint because the bank simply followed the course of the market. The Bank of England increases the rate of discount when it chooses and every one acquiesces. It is done in