Knowledge that Transforms

Perhaps no phase of workmen's compensation insurance is more interesting, or less familiar, to the layman than the principles and practice of rate-making. If the interested layman be an employer, he has been assured that the rate for his establishment is derived from actual experience, perhaps even that the present rates are the most scientific ever devised by the wit of man;' if an academic inquirer, he has learned of pure premiums, loadings, and multipliers, and of various formulae for the calculation of each; but in neither case has he been able to obtain much information as to the actual processes of rate-making.2 It is hoped, therefore, that a nontechnical analysis of these processes may be of value to that growing body of economic students who concern themselves with social insurance. All insurance rates are made up of two factors: the "pure premium," or actual benefits insured, and the "expense loading,"

In a discussion of the methods of automobile insurance ratemaking it is essential to keep in mind that the measurement of risk in every branch of insurance has approached its present status by a series of improvements and that modern methods in personal and property insurance are a result of this progress. There is consequently no anomaly in the fact that in automobile insurance, one of the youngest branches of the business, a satisfactory system of ratemaking still awaits development. The automobile was of comparatively slight importance prior to I900; in the census of I899 its manufacture was reported only as a part of the wagon and carriage industry.' Motor-car insurance was introduced in this country in the same year. In the early years of the business, furthermore, co-operation was rendered impossible by the competitive practices of many companies. Promiscuous rate-cutting was a prominent and disturbing feature of the business, and it was not until I9IO that the predecessor of the present association for rating liability and property damage risks was formed. Associated action as regards fire and theft rates appears to have been initiated only one year earlier.2

I. An explanation of the Amherst program in economics in formal economic terms is impossible, forA. It is inseparably associated with the institutions and influences of its intellectual environment, sincei. The program in economics is an aspect of the "new curriculum." 2. The "new curriculum" is an expression of a general educational theory, and3. The educational theory is but a single manifestation of a philosophy of life.