The Rural Voice, 1998-08, Page 27company then chances are the son,
when he takes over the family farm,
will follow in his footsteps," said
Hutchinson.
The underlying principles of
mutuals have been of co-operation
and self help. When they first started,
a mutual policyholder was asked to
sign a premium note agreeing to
assume certain liabilities of the
company which were directly
proportionate to his limit of
protection.
The whole idea was to get
neighbours together so they could
share risk. When a fire occurred, the
mutual company assessed the
damages, collected the money needed
to cover the injury directly from the
policyholders and paid the person
who had suffered the loss.
If the company didn't have
enough money at the time it could
evoke the money needed at year-end
from policyholders. Any money a
farmer paid was taken off his next
year's premium. It was like an extra
payment in advance. The notes were
on three per cent of the farmer's
premium.
For example, a farmer with a $100
premium note could be asked for
three per cent of his note. The farmer
would then have to hand over $3, a
lot of money at the time.
While the notes were rarely used,
over time regulators suggested
mutual companies adopt uniform
methods of payment in order to
ensure protection of the company and
fairness to the individual
policyholders.
The next step was to adopt a plan
whereby companies could estimate
future losses and costs as a basis for
rates. Under this system, payment on
the premium note was only made
when expenses exceeded the
estimated cost for the year.
Mutual companies moved away
from this system of assessment and
started collecting premiums in
advance. In 1975, the premium note
was discontinued in favour of the
Fire Mutuals Guarantee Fund.
At present, there is between $1-2
million in the fund. The fund is there
to bail out a farm mutual company
that is on the verge of bankruptcy.
The fund has rarely been used but
companies know it is there if needed.
Up until the 30s fire losses were
the primary concern of farm mutuals
and many companies have still kept
the reference in their names. As times
changed and farmers started
demanding more protection for their
buildings, machinery, livestock and
crops, individual mutual companies,
wanting to lessen the burden of
insurance on their companies, started
sharing portions of their risk with
each other. This process known as re-
insurance soon became compulsory.
In 1959, an effort was made to
make the process of reinsurance more
efficient. That year the first
Canadian -owned reinsurance
company was formed. As insurance
risks increased in value with the
beginning of hydroelectricity and
more expensive farm equipment, a
province -wide pool system of co-
insurance among companies was
seen as the best way to insure
individual companies' financial
stability.
Every year McKillop in Seaforth
pays close to $600,000 to the
reinsurance company to protect the
•
Farm
Residential
Commercial
AM Automobile
howiCk MUTUAL INSURANCE
COMPANY
Wroxeter, Ontario
NOG 2X0
(519) 335-3561
NEIGHBOUR TO NEIGHBOUR
INSURE WITH
• CONFIDENCE
Comprehensive
farm and home
insurance coverage
right in our own
community
GERMANIA FARMERS'
MUTUAL FIRE
INSURANCE CO.
Ayton, Ont. NOG 1CC 519-665-7715
AUGUST 1998 23