Part 23

Today the press is our best friend, and we have taught the world that a mother can not live for her home and children in the best way unless she takes into her thought and work all other homes and children. The wives and daughters of the land have learned through us that a woman’s duty lies along the avenues by which she may bring into the home the best from the outside world. We conserve the home and child by our work in promoting the creation of juvenile courts, both in this country and abroad, and by sending to this convention as delegates our chairman of that committee, Judge Benjamin Lindsey. We organize parents’ and teachers’ meetings in city and rural schools, and to make these meetings possible we have a committee on good roads for country children’s welfare.

As a conservation congress for child welfare, we offer you, gentlemen, our experience and our organization in any efforts which you may put forth for the betterment of childhood whether in city or country. (Applause)

President WALLACE—I take pleasure in introducing to you Congressman Fred S. Jackson, former Attorney General of Kansas.

MR. JACKSON—As soils may be exhausted, it is even possible to exhaust the conservation of soils—by discussion. We have listened to several papers, each of which has been not only intensely interesting but exhaustive on the subject of restoring and conserving exhausted soils. I may be pardoned, therefore, in asking your attention to another great national subject of conservation; that of conserving our lives and millions of property from loss by fire. This subject has been already partially discussed, before this Congress, through and by means of a report of the National Board of Fire Underwriters, a national organization of fire insurance companies.

This report, though good in the main, is one-sided. It calls attention to the public duty of citizens in general in preventing fire losses. We desire by means of a national investigation under national supervision to remind insurance companies of certain of their own public duties, relative to the causes of fire losses.

All agree that these losses are enormous and when compared with that of any other country are excessive and abnormal. In the last decade the amount of property insured has doubled and in spite of a campaign for fire prevention by the insurance companies, fire losses have also doubled.

This disappointing result has led many of the best informed insurance experts of the country to conclude that the real “bug under the chip” in our fast increasing excessive and abnormal fire losses is the insurance rate, for which our insurance companies are responsible.

I hold no brief in this matter against the insurance companies. I became interested in the subject merely as a state officer in an attempt to enforce state laws and to secure state supervision of rates in the interest of the public. Such laws are now in force in at least four states of the Union, and are sustained by our courts on the theory of the state’s right to protect the life and property of the citizens against loss from fire.

POWELL EVANS’ VIEWS.

The importance of this subject has not been better or more strongly stated than by Mr. Powell Evans, of Philadelphia, one of the leading business men of the country, who spoke before this Congress in its first session, in May, 1908. In a recent magazine article, Mr. Evans says:

Fire waste in the United States and Canada is about ten times that of western Europe. It averages broadly $250,000,000 yearly with $150,000,000 added expense for protective measures imperatively demanded by this great, continuous, and increasing loss.

The 1910 fire waste would pay the total interest-bearing debt of the country in four years; or would build the Panama Canal in less than two years. In other terms, it exceeds the combined cost of the United States Army and Navy and the interest on the National debt; or nearly equals the combined annual failure and pension payments in the United States; or exceeds the combined United States gold and silver production and Post Office Department receipts—these all annual figures.

It represents about 40 per cent of either the total unused United States government receipts or total expenditures, or the net earnings of American railways; it represents about 80 per cent of either the United States Internal Revenue receipts or the United States Customs or the interest paid on the railways in the country. It exceeds the combined annual value of wheat, hay, oats, and rye crops, and is twice that of the cotton crop. It costs about $30,000 for each hour in the Year, or $500 for each minute. It costs, moreover, more than 1,500 lives and 5,000 serious injuries annually.

If all buildings burned last year in the United States were placed together on both sides of a street, they would make an avenue of desolation reaching from Chicago to New York, and although one seriously injured person were rescued every thousand feet, at every three-quarters of a mile a man, woman, or child would nevertheless be found burned to death.

This fire loss averages three dollars per capita in America each year as against thirty cents in Europe. It is absolute loss, and not ever transferrence of value. It positively does no good to anyone. About two-thirds of this waste in life and property in this country could easily be avoided by means similar to those employed in western Europe, where the loss is about one-tenth of ours.

INSURANCE COMPANIES IN CONTROL.

Let me now tax your attention with a consideration a little more in detail of the part played by the insurance system and the rate in the fire waste of the country.

By common consent the control of fire has been left almost entirely to the care of the fire insurance company. The average man considers that the company pays the loss and suffers loss in the payment. In his opinion the company is impelled by fear of loss to exact a high state of efficiency from all engaged in stopping loss, and that it is also in position to know what ought to be done at any time to prevent loss or strengthen the forces that fight fire. From the point of view of the average man, to pay the insurance premium is to discharge his whole duty as a citizen. All else is a detail of the business of fire insurance and none of his business.

The prevalence of this conception of the interest of the fire insurance company explains the apathy of the public and prominence of the company in all questions of public safety against fire. Nevertheless, it is a misconception, and until the public bestirs itself in its own behalf, fire waste will never be subdued. While the company pays the loss, payment is made out of a fund taken from the public in advance. This premium fund covers not only the loss but about as much more in addition for the use and profit of the company. Up to the limit of price that the public will stand for, the higher the losses, the more the premiums and profits to be collected by the company. Thus the doubling of the loss, in the face of a ten-year campaign for reduction led by underwriters, is not the reflection on the leadership that it seems. If losses doubled, so also did premiums and profits.

The actual control of the situation lies with the insurance rate. However, the companies may protest and exhort, little will be doing unless their admonitions find concrete embodiment in the rate. It was the rate that doubled premiums during the last ten years, and it was the rate which maintained the conditions of risk implicated in doubling the losses. It is axiomatic that premiums cannot be doubled unless losses double, and that losses will not double unless there is hazard to produce them. A true rate could have been promulgated ten years ago, which would have sent much hazard to the discard as no longer profitable and much of the subsequent loss would not have transpired. But premiums would have suffered a like shrinkage.

Mr. Evans’ address before the first Conservation Congress, to which I have already referred, became the basis of an official utterance by the National Board of Underwriters, and the public therefore must regard him as a creditable witness.

INSURANCE RATES.

Here is what he says of the part of the insurance companies and insurance rates in this great national calamity:

The world’s insurance bill is the measure of its fire waste. In the United States insurance costs, on the average, about 1 per cent of the policy value or one dollar per one hundred, with three dollars per capita fire waste; whereas, in western Europe insurance costs on the average one-tenth of one per cent of the policy value or ten cents per hundred, with thirty cents per capita fire waste.

The sound rule follows that, as fire waste is reduced, the cost of insurance automatically falls in proportion, and from this cause only. Insurance is not a commodity in the usual term; it is a tax which distributes the fire waste of the country over its population. It is fundamentally a nation-wide average. About one-half of all insurance premiums collected are returned to the insured for fire losses, and the remaining one-half goes for expense and profits in the insurance business. Unduly numerous or large fires, or conflagrations, swell the total waste bill, and automatically rates rise everywhere within the national boundaries, until the half of all collections is great enough to pay these losses. Every inhabitant of the country contributes an average share of these insurance bills; higher rents, clothing, and food bills; and through them higher credit rates and interest on loans. No one can escape. In the aggregate, it can safely be said that every workman pays this three dollars yearly for every member of his family, through either one or all of these channels.

The insurance interests have limited influence; no power other than imposing a high rate; and are in a measure, because of their own commercial interest, indifferent to present fire waste. It would appear to the layman at first glance that less fire waste would be welcome to the insurance business, yet the insurance influence is far from making a united effort to reduce it. So long as an insurance company does not have to pay out more than fifty per cent of its premiums for fire loss the unit profit is good. Therefore one-half of a high rate nets a greater final profit than the same proportion of a low one. Hence the automatic yard-stick rate schedule which companies apply to any property, which totals up the final rate in each case—having regard to the building, contents, and location (exposure hazard). This might result in a premium as low as ten cents on new mills, and stores (not contents); or as high as ten dollars per one hundred dollars on Southern wood-working mills. Many insurance managers actually prefer the higher rate and risk as making higher possible earnings for the company and permitting a higher absolute payment to the broker, thus enabling the manager to produce a larger net annual profit, and to interest and hold a better line of brokers through whom to distribute his contracts of insurance.

The broker, who gets from ten per cent to thirty per cent of the premium, objects even less to the higher rate—although, as we have seen, it inevitably means higher risk and more chance of fire, and in fact more fire waste; so the destruction continues.

There’s a siamese twinship between premiums and losses that forbids a knockout. Packing houses afford an apt illustration of the control of the situation wielded by the insurance rate. Public attention was attracted last winter by a large loss in the Chicago stockyards which was accompanied by the death of many firemen. This loss involves a paradox which few observed. Why should appliances which would have prevented this loss and catastrophe be absent in the congested Chicago yards, and yet present in similar outlying plants owned by the same men? No spot on earth needs precaution against fire more than the Chicago stockyards, and in none is there a more profitable opening for investment in the means of safety.

SAFETY NOT SOUGHT FOR ITS OWN SAKE.

The answer lies in the fact that safety is not sought for its own sake by the average business man. From the small dealer to the board of trustees of a great university, no more is appropriated for safety against fire than will pan out profit from the insurance rate. The rate makes safety pay in the outlying packing house and makes hazard pay in Chicago, and the packers are governed accordingly. Inquiry would probably develop that competitive conditions made a reasonable rate possible in the locations where the plants have been made safe, whereas, in the Chicago yards, competition does not operate and the rate is made by a board having only commissions at stake.

How is this rate, so loaded with import to life and property, made? This question assumed prominence when regulation of rates was undertaken by certain states. Inquiries conducted by these states show that rate-making is neither what it purports to be nor what the public imagines. What it purports to be is indicated by the title given to schedules promulgated by associated insurance companies for the formation of rates throughout the West, namely, an “Analytical System for the Measurement of Relative Fire Hazard.” It is claimed to be a system of measurement. Something scientific, accurate and just is indicated by this title. The public accepts the schedule at the valuation fixed by the title, and believes that back of its provisions is a great fund of digested information bearing upon every angle of the problem. It suggests information collected by the companies with infinite patience and given freely, so that the making of rates might be done with exact justice to all, charging to none the burden that rightfully should be borne by another. What rate-making really is may be inferred from the inquiry of Missouri as to the reasonableness of the important schedule filed under the rating law of that state for the formation of rates for fireproof buildings and contents. Some knowledge of premiums and losses in this class of property is clearly essential for the making of reasonable rates.

WHAT WAS ASKED OF COMPANIES.

The companies were first asked by the Insurance Department of Missouri to furnish their experience in fireproof buildings and contents. Companies like the Aetna, Hartford, Home and Royal replied that they had never kept a tabulation of this nature and were unable to furnish any information which would show what premiums and losses might be expected from such property. It was explained by these companies that it was their custom, in keeping track of bakeries, for example, to class together those of ordinary construction, improved construction and fireproof construction.

No useful information could be gleaned from such a source, and the experts who prepared the schedule were called to the witness stand and requested to justify their handiwork. It appeared on examination, however, that the provisions of this schedule were prepared without one iota of information showing what premiums and losses had been experienced in this class of property. It was not known whether the rates formerly used had proved unduly profitable or unprofitable, nor was it known with certainty whether the new rates would increase or diminish the premium charge as a whole.

All classes of property receive this arbitrary treatment. In none are statistics kept to show whether the schedule is producing too much or too little revenue in comparison with the losses. It is admitted that many classes pay too much, while others are being carried at a loss, but no schedule is made to rectify this abuse, although the schedule purports to be a system of measurement.

The companies do not keep faith with the public. We are promised that greater care to avoid fire will reduce the loss and lead to lower rates. But the rating system is conducted so that the public will neither know its just due nor receive it, except by resort to other forms of insurance. When some organized industry undertakes self-insurance, ratemakers soon find that conditions have improved and that reductions are in order.

It is evident, however, that the end of this system of false measurement is near. Four states are regulating rates under laws which call for rates in reasonable relation to losses, and the sustaining of the constitutionality of such regulation by the lower courts makes similar legislation certain in practically all states. There is urgent need, therefore, for accurate knowledge on all matters which affect the rate of burning in the several classes of property. This knowledge does not exist. It must be acquired by study of data yet to be gathered. The data in the hands of the companies is worthless. It has been gathered by plain business men engaged in the insurance business, and, whatever the purpose of the compilation, it certainly has had no reference to the formation of reasonable rates.

NEED FOR FEDERAL INVESTIGATION.

Faulty treatment, and not incurability, is indicated by the persistence of the high level of destruction by fire in this country. The treatment is vague and characterized by irresponsibility. Diagnosis is wholly lacking; the location of the trouble is not known, and the remedies are applied haphazard in ignorance of the possible effect. No person connected with the treatment has a definite result to produce, or is even asked to prove that any result has been produced. The premiums and losses are reported in bulk to each state. The summation of these reports into one huge total constitutes all that is done by the insurance company or the insurance rater or the public to discover the workings of this great waste.

Such blind methods can accomplish nothing. Risks must be enumerated. Those in need of treatment must be singled out and something economically appropriate be prescribed for each. To find out where and how effort can be put forth to economic advantage—to define what can be done wisely by the class and individual to reach the low economic level of loss—to keep watch of results and register the efficiencies of fire alarms, fire patrols, fire departments and fire resistants—these are details which must be wrought out before fire waste can be attacked with definite aim and for the perfecting of which the Federal investigation and bureau is proposed.

The states appeal to the Federal Government to standardize the schedule for the formation of rates so that it shall become a true measure of the conditions to which it is applied. Leaving this measurement to the dictates of the “best underwriting judgment” has proved a costly error to the people. The underwriter escapes the common lot; the cost of his “error,” with a substantial addition for his profit, is borne by the people.

When the fog that envelops this waste shall become dispersed by the Federal analysis, the way to its speedy removal will become clearly visible to the individual states.

I lay no claim to originality in the presentation of this subject. I have given you facts and for the most part the comparisons and expressions of the experts who compiled these facts. They are original only in the sense that the testimony of witnesses recited in a brief or argument in a trial are original.

I have asked the assistance of the Congress of the United States to secure an investigation of this important subject to the end that power may be added to the arms of the states to restore natural conditions as to fire losses in our modern business world.

President WALLACE—You will now hear the great highway engineer of Missouri, Hon. Curtis Hill, on the subject of how good roads help the farmer.

Mr. HILL—Mr. Chairman, Ladies and Gentlemen: There is no question but that we have been making as much progress in road work during the last few years as we have and as we are in other lines of work, and still in many places we are not making the progress that we road-making enthusiasts, and I might say road cranks, would like to see made. Still I do not believe that we can now apply to our highways over the large part of the Mississippi and Missouri valleys that little poem which, or a few verses of which, Robert Burns is said to have written upon his arrival at a little town in Scotland, illustrating that the highways of Scotland at one time were not much better than they are today of Missouri, I might say. Speaking of those highways, he left two verses, which run something like this:

I am now arrived, thanks to the gods, Over pathways rough and muddy; A certain sign that making roads Is not these people’s study.

And though I am not with Scripture crammed, I am sure the Bible says That you people shall be damned Unless you mend your ways.

Now, how good roads help the farmer must always include others, and it can be best discussed in a short discussion, in a general way under two heads. First, transportation systems, and the importance of our social conditions. Referring to Robert Burns in Scotland, you will see that the road question has been hammered upon for years and years. Man has been considering it as a means, and as one means of transportation. Now, in fact man has been forever trying to overcome gravitation, from the first load that a man carried on his back, or put upon the back of a pack animal, he has been endeavoring to lighten his burdens by overcoming the laws of gravitation. And so it has been through all history. The galley, the sail boat, the steamship, automobile, and air-ship. The good roads is one line in the endeavor to overcome the laws of gravitation and to make easier one method of transportation. Transportation charges have entered more into the cost of living than any other one item. Food, clothing, building material, all the staple necessities of life have had to pay the freight. The freight is deducted from or added to the price of the article which forms the basis of the price which the producer receives or the consumer pays. The man who produces the commodity, or he who settles the bill, pays the freight. Neither the producer nor the consumer has gained by a high cost of transportation. The question of good roads is therefore at the present time one of the most vital with which we have to deal. There is no one internal improvement so absolutely necessary and essential to a state’s progress and prosperity as the betterment of the highways. (Applause) Good highways are necessary to a state’s progress and prosperity, as well as that of a community, because they involve the transportation problem. With transportation is involved the problem of life, the cost and pleasures of living, exchange of commodities, valuation of property and the social and moral and educational conditions. The problem of life is a study closely linked with the problem of transportation.