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28 HASKINS & SELLS April Co-Insurance Clauses THE co-insurance clause is one of the most frequently used, most severely criticized, and most misunderstood of the insurance clauses in general use today. Yet it is the most reasonable and the most equitable of them all. In Europe the fairness of the co-insurance clause is well established, the majority of the countries making its use compulsory by law. In the United States its use is mandatory in some states, optional in others, and prohibited entirely in some western and southern states. However much has been said and written on co-insurance, there are still many, even some actively engaged in the insurance business as well as legislators and policyholders, who do not understand its purpose and operation. Fire insurance is one of the great necessities of our business, social, and economic life. The expense of maintaining it should be distributed among the property owners of the country as equitably as is humanly possible. Insurance is in the nature of a tax. Just as taxes of the government are used to cover the expenses of running the government, so the tax of fire insurance companies is for the purpose of paying the fire loss of the country. Each policyholder pays his premium into a fund, which the fire insurance company distributes among those who suffer loss by fire. In the event insurance were to be provided by the state or national government it is practically certain that an assessment would be levied against all property subject to loss from fire in precisely the same manner as all other taxes are levied; that is, upon the full assessable value of the property to be protected. In fact, it is in this manner that the insurance tax in Germany is assessed. Since insurance is a tax and since it is not obligatory in the United States to insure in total, it becomes necessary, therefore, to ascertain equitable principles of assessment. There should be no discrimination between individuals insuring risks of equal hazard, just as there should be no discrimination by a railroad between different shippers receiving identical service. Each risk should contribute its equitable proportion of the total sum collected for loss payments. This effect is secured by rating the several risks according to their individual characteristics, crediting each risk with its favorable features and charging it with its unfavorable features. Thus, efforts to reduce fire hazard are encouraged, and the consumption of national wealth by fire thereby is reduced. However, any such scientific system of rating is impossible without the feature of co-insurance. If all losses were total, those who insured in total would receive their reward, while those who preferred to pay less in premiums would be penalized accordingly. However, the records of the leading insurance companies indicate that of all the losses sustained, about 65% (numerically) are $100 or less; about 30% are over $100 and less than total; and about 5% are total. The natural inclination, therefore, on the part
Object Description
Title |
Co-insurance clauses |
Author |
Anonymous |
Subject |
Insurance Fire insurance |
Citation |
Haskins & Sells Bulletin, Vol. 10, no. 04 (1927 April), p. 28-31 |
Date-Issued | 1927 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 10-p28 |