CHAPTER VI

TRADE RISKS

THE great bulk of workmen's compensation business consists of trade risks. The methods of insuring these are more complicated and call for more discrimination than is necessary for domestic servants' risks.

Domestic servants form a more or less distinct class; they do much the same kind of work and in similar surroundings. Rates of premium for such employees can therefore be stereotyped with a fair degree of justice. With trade risks it is far otherwise. Conditions of employment and the perils incidental thereto vary enormously as between different classes of trade, and variations arise even amongst members of the same class according to the methods adopted for carrying on the business. It may be said without fear of contradiction that the incidence of the different hazards, the methods of rating, and the general ramifications of workmen's compensation business, are sufficient to provide study for a lifetime. In this chapter an attempt is made to set out in elementary form the underlying principles of the business and the present-day methods of conducting it.

These may, perhaps, best be illustrated by an examination of the general considerations which have to be taken into account by the company which has before it a completed proposal form for a workman's compensation risk. By this is meant those general considerations which apply to all trade proposals, apart from the special points which arise in connection with particular trades.

It has already been said-and this point cannot be too strongly emphasized that the proposal form is the basis of the contract. No trade risk can be properly apprehended, nor ought it ever to be accepted, without a completed proposal form signed by the proposer himself or by his duly authorized representative. When a company has such a proposal before it, the points arising may be divided broadly into two main classes

(a) Those which relate to the eligibility of the risk for acceptance. (b) Those which govern the rating of the risk.

ELIGIBILITY OF RISK.

The question of whether a risk is eligible for acceptance depends upon two factors

(1) Physical hazard.

(2) Moral hazard.

PHYSICAL HAZARD.

In the class of business under discussion the physical hazard is by far the more important of the two, when it is borne in mind that any claim which may arise is for compensation to be paid to a workman and not to the insured himself, it is easy to see that the moral hazard of the proposer, though it cannot safely be neglected altogether, does not assume the same importance as in most other classes of business.

The Trade. In estimating the physical hazard, the first point on the proposal form is the nature of the trade. Most offices have a more or less stable list of trades they prefer not to accept. Proposals may be received running through the whole category of trades from a simple office risk to the extremely hazardous trades of master stevedores or window-cleaning companies.

Trade risks taken as a whole are now on a fairly profitable basis, but this has not always been so, and the business has on occasions passed through its bad periods. During the first few years following the passing of the Act of 1906, what with new conditions and lack of experience in rating, many offices were transacting the business on a very small margin of profit if not at an actual loss, and an all-round revision of rates became necessary to put the business on a paying footing. It is, therefore, natural that many companies are unprepared to accept every class of risk however hazardous. Some restrict their acceptances to light, non-hazardous trades, while others may accept almost anything that is offered to them. It may be said that the tendency of offices generally is to broaden the basis of their underwriting, and it should not be overlooked that any new legislation is likely to make insurance compulsory and to carry with it some sort of undertaking by the offices not to decline risks on account of the hazard of the class.

Machinery. The next point refers to the machinery used in the works, and whether

(a) it is mechanically driven;

(b) it is properly guarded.

Mechanically-propelled machinery, i.e. involving the use of steam, gas, water, electricity, or other mechanical power, is one of the most fruitful sources of hazard. Machinery driven by hand presents considerably less risk. Where mechanically-propelled machinery is present, then it becomes important to know how it is fenced and guarded so as to minimize the risk. This information is derived from question 3 on the proposal form. For very large risks with a considerable amount of machinery in use, a survey of the premises is desirable. This will be referred to later under the methods of rating.

Connected with the use of machinery are also the condition of boilers and the extent to which acids, gases, chemicals, or explosives, are used. These questions on the proposal (Nos. 5 and 6) call for careful scrutiny as having a bearing on the physical hazard.

Claims Experience. This is the last but by no means the least of the considerations arising in connection with the physical hazard, and is one of the points most keenly watched by the experienced official. Particulars are required for a period of three years prior to the date of the proposal, if the business has been so long in existence, of all claims which arose, showing separately those which ended fatally, those which caused permanent disablement, and those causing only temporary disablement. The number of claims arising in each year must be given, and the total amount paid as compensation in respect thereof. Any outstanding claims should be included with an estimate of their probable cost.

The fact that a number of claims have occurred is not of necessity a bar to the acceptance of the risk. In most manufacturing or industrial risks claims of some kind are almost inevitable. The important point to note is whether the claims, by reason either of their number or of their magnitude, are more than should reasonably have been incurred for the class of trade. This point requires considerable experience properly to determine. The number of claims is a very important point. The occurrence of a large number of accidents may be evidence of something unsatisfactory in the

risk. If the accidents are of a serious nature it points to an undesirable element of risk in the trade process, whilst if a large number of minor accidents is reported, it shows either bad management or carelessness on the part of employees. Such points as these have an important bearing on the eligibility of the risk.

MORAL HAZARD.

For evidence of the moral hazard, reference must be made to questions 7 and 8 on the proposal form dealing with the previous history of the proposer. These questions are designed to ascertain

(a) If the proposer is at present or has previously been insured against his liability to employees.

(b) If so, with what office.

(c) Whether any such proposal or renewal has ever been declined or withdrawn.

The answers to these questions are material facts and must be fully disclosed to the company. The proposer is bound to state all the companies with which he may have been insured, and whether in respect of the same or any other employees. Where any proposal or renewal had been declined, the company would make enquiries from the office declining. No difficulty arises in this connection; the usual courtesy between offices makes it possible to obtain all the required details. Declinature per se is not necessarily evidence of poor moral hazard, but it always calls for investigation.

Methods of Rating. Being satisfied as to the eligibility or otherwise of the risk, the company has next to scan the proposal to see that the necessary information is given to enable the risk to be properly rated. Amongst the leading companies rates are regulated according to the rules of the Accident Offices Association. These rules are comprehensive in character, and there are only a few classes of trades which fall outside them. It will be readily understood, however, that trades, professions, and businesses resolve themselves into a large number of different classifications and sub-divisions, amongst which the rates have been by experience scientifically adjusted.

The Trade. The most important factor, then, is the nature of the trade, taken in conjunction with the particulars of work done.

A mere description of the trade would not always be sufficient. A man might describe himself as an engineer, but without exact details of the class of work done, it would not be possible properly to rate the risk. The rates naturally depend on the work done and the weight of the heaviest individual piece produced, and the machinery used in the process. Again, it must be stated in many trades whether work is done entirely in the factory or workshop, or whether there is outside work such as carting, erecting, or repair of machines. Further information on these points may be obtained from the schedule of employees.

Machinery. The use of machinery has an important bearing

the rating. Trades using mechanically-driven machinery require a higher rating than those in which the machinery (if any) is hand-driven only. Thus, to take an example, builders' risks in which power-driven machinery is used on the job are rated higher than if such is not the case. The purpose for which the machinery is used is another point to be taken into account. The greatest hazard is connected with wood-working machinery, i.e. powerdriven machinery of any kind for working in wood. Employees engaged in the use of such machinery must be rated higher than other machine hands, and the proposal form must be closely watched to see if any circular saws or other wood-working machines are used. Whenever it appears that the proposer has a considerable amount of machinery, or the works are large and the trade processes complicated, it is desirable that a survey should be made, and it is convenient to indicate here the general form of such a survey.

Survey. Printed forms of survey are not used for workmen's compensation risks, as conditions are so varying, and one risk differs very greatly from another. However, it is possible to give in summarized form the chief points which a surveyor would look for in inspecting a typical factory risk. These points may be divided into four groups.

(1) ARRANGEMENTS IN THE FACTORY. (a) Ventilation. The atmosphere of the factory is of considerable importance. It should be cool, dry and moving rather than hot, damp and motionless. There should not be extremes of temperature either in summer or in winter. High temperatures induce slackness and low temperatures hinder the employees' skill at their work. A system