THE FARMERS’ UNION

Te Aroha News, Volume XLI, Issue 6440, 19 January 1924, Page 5

THE FARMERS’ UNION

NEWS FROM HEADQUARTERS

(By R. Alexander, Official Reporter.)

In my last letter dealing with Mutual Assurance Associations I indicated that the executive had obtained a very comprehensive report upon the matter from an acknowledged authority upon insurance matters. Figures, generally speaking, provide dry reading, but the information afforded in this report fully justifies the attention of farmers, because practicalsuggestions are made for the, enlargement of the functions and the strengthening of the financial status of the existing co-operative companies. The scheme has been prepared by Mr C. R. C. Robieson, ex-Head of the State Fire Insurance Department, a gentleman well-known throughout New Zealand, and it will come up for consideration at the Dominion Conference in Wellington on January 30th. The report is too lengthy for one article, but the salient features of Mr Robieson’s suggestions are as follows :

SCOPE OF PROFOSED SCHEME

An axiom of Insurance is that the greater the variety of insurance handled and the greater the number of risks well distributed, the greater the safety and regularity of profit in the business. Bearing this in mind and carefully surveying farmers’ needs and requirements I am of the opinion that there is scope for a general insurance scheme embracing:—l. Fire insurance on ■ buildings and contents of all individuals and co-operative trading institutions. 2. Fire insurance oh crops in field and in stack. 3 Comprehensive insurance and fire only on motor cars. 4. Workers’ compensation and personal accident insurance. 5. Mortgagees indemnity. 6. Marine insurance .on all farmers’ produce exported and on all imports for farmers trading institutions. 7. Perhaps when established, life insurance and live stock insurance and other forms of insurance might be added.

POSSIBLE PREMIUM INCOME

Assuming a fairly general support could be secured for individuals and from farmers’ trading companies for fire and accident insurance and from the Meat' Control Board and Dairy Control Board and Farmers’. Trading Companies for marine insurance, the possible annual income is estimated as follows:—Fire, insurance on buildings and contents and on npacjiinery and plant, £250,000; motor car insurances, £100,000; workers’ compensation and personal accident, £100,000; marine insurance, £2so,ooo—total £700,000. If life and other insurances are added later, the income should ultimately reach £1,000,000 per annum.

FINANCE AND ORGANISATION

To carry out the scheme it would be necessary to obtain a fully paid up capital cf not less than £50,000 This sum is the minimum on which the law allows a Limited Liability Company to be registered and for the purpose of the scheme it is in my opinion necessary to form a Limited Liability Company in order that there may be no obstacles in the way of the full and free functioning of the company in whatever direction the directors may consider best, and the free acceptance of the companies’ policies by mortgagees, banks and other financial institutions.

The required capital should, it seems to me,'be easily and quickly obtained especially if the four Mutual Insurance Associations would consent to join up with this scheme. These Mutuals have in hand over £25000 of capital, and there would remain but £25,000 more to be secured. In order to maintain the company on a purely Mutual and co-operative basis I am of the opinion that no dividends or bonuses together on share capital should be allowed to exceed 7 per cent in any one year. The farjners’ organisations as they exist to-day offer a unique and most efficient basis for the establishment of such a company as suggested. Secretaries of branches of the Farmers’ Union, secretaries of co-operative dairy companies and representatives of co-operative trading companies are scattered throughout the length and breadth of the Dominion, and situated as they are in close touch with farmers, are in the best possible position to secure business for the company. HEIN k u RAN CES It will be necessary to .arrange reinsurance contracts in London. I am in close touch with Lloyds’ leading brokers, and have no doubt at all that first-class contracts can be secured and the greater the volume of

business the company has to offer the better the contracts to be obtained.

PROBABLE FINANCIAL RESULTS

The question as to what surplus may be expected from the conmpany's operations necessarily depends upon the rates charged, the selection of risks, the volume of business and the ratio of losses and working expenses. Given an income from fire, accident and motor car insurance - of say, £300,000 on rates now charged by the Taranaki Mutuals for fire cover, and, say, a 10 per cent, to 15 per cent, reduction on tariff rates on motor car business and accident insurance, the results from these classes should\ work out approximately as under:— Income, £300,000; losses, re-insuran-ces, premiums and working expenses, £225,000 —surplus, £75,000. The'surplus on marine will depend on rates decided upon, and this can only be determined when probable volume of business is known and rates for re-insurance arranged in London. I think it is safe to say that twothirds of all classes of the business available were secured a surplus of £IOO,OOO per annum could be expected on the average year over a period of years, but I repeat, that will depend upon rates charged. SETTLEMENT OF LOSSES Within New Zealand the usual method of settlement of losses by the selection of reliable adjustors can be carried out without difficulty, and economically. It is in the settlement of marine losses in London where I am sure that very great savings can be made, especially in claims for damage to meat cargoes. For many years past a practice amounting to dishonesty has been in vogue in London in connection with meat claim adjustment, and I am sure a method of check upon the London adjustments would save many thousands of pounds annually. ACCUMULATED FUNDS AND USE THEREOF

It is universal practice in insurance, and one which should be followed by this company if formed, as a matter of necessity, to place 40 per cent of the premium to reserve account as an unearned premium reserve fund. This fund, together with undivided profits, would soon amount to large proportions, and, of course, must be invested in a manner to sesure a reasonable interest on the .capital. Assuming that the income reached £500,000 for all classes of business, the reserve fund may very soon be expected to reach £250,000. It has occurred to me that much of this cap? ital could be used for assistance to farmers through the agricultural bank when established.

THE FARMERS’ MUTUAL ASSOCIATION

The first step in the formation of a Limited Liability Farmers’ Insurance Company would be to gain the agreement of the four Farmers’ Mutual Associations to come into the scheme. CONTROL OF COMPANY

The company would, of course, be controlled by a Board of Directors, as is the case with all joint stock companies, but some variation would, I think, be necessary in order to give policy holders, as well as shareholders, some representation on the Boai'd. This is a matter which can be considered by the Provisional Board/undertaking control of the organisation and drafting of constitution of the new company. The appointment of/ a trained insurance man as general manager is of course, obviously necessary.