APPOINTED TO INVESTIGATE CORRUPT PRACTICES THE AFFAIRS OF INSURANCE COMPANIES OTHER THAN THOSE DOING LIFE INSURANCE BUSINESS VOLUME III TRANSMITTED TO THE LEGISLATURE FEBRUARY 1, 1911 ALBANY J. B. LYON COMPANY, STATE PRINTERS By Mr. HURRELL: Q. I did not know but what you might, taking up the changes suggested, explain orally more quickly than you could read, the reasons set forth in the circular, just why the particular changes are advocated? A. I don't think so. They are specific as to each change. Mr. HURRELL: All right. Then we will offer it in evidence. (Received in evidence and marked Exhibit R-1.) Q. Is one feature of those suggested changes that in case of appraisal after a loss there is found to be an over insurance that a pro rata share of the premium is returned or allowed on the loss? A. Yes, sir. Q. That would cure any inequalities in this valued policy idea, would it not? A. It would remove the objection that Mr. Bruce brought up that we took the premium and kept it, but at the same time you want to realize that the loss don't come but in one case in five hundred. It would only remove the we would keep them in the four hundred and ninety-nine you know; but still it is an effort to make it as fair as you can. You cannot get it in any other way without an appraisal. By Chairman MERRITT: Q. You cannot deal with it until there is a loss as I say? A. No. And the objection is never made by the assured until there is a loss. He don't realize what he is doing until that time, so that it meets every objector. That was my point in putting it in there. By Mr. HURRELL: Q. You have advocated, have you not, with the underwriters the plan of paying agents known as the contingent commission plan? A. Yes, sir. Q. Have you met with any success in inducing any other underwriters to come over to that view of things, so as to get that in operation in your company and others? A. I think a great many have adopted the method of compensation in part. Q. Do you pay some of your agents on that plan? A. Several hundred of them. Wherever the business has what I have termed an inherent moral hazard I put the agent on a contingent. Q. That is the test for you? A. Very largely, because competition prevents me doing it in the sections where the profit is pretty large. Q. Do you think the Legislature could help any if it should state that that is the way the business should be done, or agent should be paid? A. I have said that I do not think the Legislature ought to try to control the commission question. Q. One of the reasons that the valued policy law works in part badly is because of the lack of identity of interests between the company and the agent? A. Yes. I think if you are going to control the commission question, if you are going to say what commission shall be paid, that you should practically that you must, if you have in mind the welfare of the State, make the agent interested in the result. He works out of sight. We don't know. He sends us in a plan of a risk, and it may be on fire, or next to it, and it looks just as good on the plan as though it was a fine risk. Now, that man ought to be interested in the results, otherwise he is not going to keep the insurance down, and it don't seem to me there is any question about it; I never could see any question at all. A man ought to be compensated first on a flat commission, and then a commission beyond that on whatever profit he made. By Chairman MERRITT: Q. You are familiar with the illustrations that are given as to why on the other side? A. I have heard some. Q. They are all theoretical? A. It seems so to me; they don't touch Q. That is, they suppose a condition to exist, if a man has a bad loss at the first of the year in a certain company, after that he don't give that company A. Let me tell you. Eighty-five per cent of all of our losses come from about twelve per cent of our agents in any given year. They change from year to year; but one man will give us a thousand dollars of premiums this year, and lose $5,000; a dwelling will burn; so that eighty-five per cent of all of our losses come through twelve per cent of our agents. Now, only half of those losses will come the first six months of the year. You have got back to the underlying principle of underwriting which is general average on everything, so you can average everything. You have got to average risks and everything else; they have all got to be put in under the theory of general average. That would leave only six per cent of the men that lose the money in the first part of the year, and all you have got to do is to watch them and see that they do not run that business off your books; and then too they will say next year I won't have it with this company, and will go on; they perhaps won't be quite so enthusiastic, but in building up the business after he has made the loss for that particular year, but I have not found that that condition affected us at all. Q. Suppose another case, a man had a number of companies A. Yes. Q. He makes a loss in one or two, but on the whole he is sure to get more from the other seven or eight, he gets a percentage on the profit of that district? A. Yes. Q. As though that were an objection? A. Yes. Q. I could not see what objection there was to that even if it were true? A. No; I cannot see, sir. I think it is largely theory on the part of the people that object to it. I know from an actual working of the plan that it is a good thing. Q. Well, the question before us as a Committee is whether or not we can do anything to make what conservative and wise management has shown to be good practice, more uniform; that is the point of view from which we approach it. That is why we ask you what you can suggest? A. I don't think that you can make wise men of fools. That is a good deal of what you are Q. The Legislature can do anything? A. That is the reason I don't think that the commission question it never will be settled probably unless it is done by legislation, and I doubt whether legislation will do it. Q. It makes some more moral hazards on another kind of people? A. They will find ways around it, you know; there are all kinds of things can be done. |