The Pamphlet Collection of Sir Robert Stout: Volume 79
§ 3. Farmers' mutual insurance companies
§ 3. Farmers' mutual insurance companies.
The high rates of insurance on rural properties led to the formation of a number of farmers' mutual insurance companies on similar lines to those adopted in Canada and the United States. These companies can only accept isolated, non-hazardous risks in country districts; they stipulate that each property owner shall carry a portion of the risk himself and that no policy shall be accepted for more than two thirds of the actual value of the property. The principle adopted by most of these companies is to insure the property of their members for a period of years, taking a small fixed payment in advance to cover the simple expense of management and page 17 the cost of examining risks, and to meet any losses that are likely to occur in the ordinary course of business.
The members also give a guarantee or premium note for a certain percentage of the amount of the insurance policy. Should an unusually heavy loss occur, a small assessment is levied on this premium or guarantee note, pro rata if the funds in hand prove insufficient to meet the loss. The liability of members is, however, limited to the amount of their unpaid portion of this guarantee note which, on first class risks, does not usually exceed 1½ per cent. per annum of the amount of insurance affected.
It will be seen therefore that, under this system, the farmers have only to pay for the actual loss incurred, plus a small amount to cover the cost of working expenses. They have not to make dividends on a large working capital, nor have they to build up an enormous reserve fund, to protect themselves against the tremendous losses that sometimes have to be met when an entire quarter of a large city is burnt down.
These companies have been successful in reducing the cost of farmers' insurance in New Zealand by nearly 50 per cent. By keeping their working expenses low, they have built up substantial reserve funds, and apart from the monetary saving that has been effected, their management has proved of great educational value, as a means of training farmers in co-operative and business methods.
A recent revision of the empowering Act permits these associations to undertake accident business, and though none of them have taken advantage of this provision, the possibility of their doing so prevents the rates of the joint stock companies from becoming excessive.