Book 4 — CHAPTER III.

INSURANCE IN GENERAL.

SECTION CCXXXVII.

INSURANCE IN GENERAL.

The idea of societies for mutual assistance intended to divide the loss caused by destructive accidents which one person would not be able to recover from among a great many is very ancient. The insurance of their members against causes of impoverishment was one of the principal elements[237-1] of the strength of the medieval communities (Gemeinden und Körperschaften.) If we compare these insurance institutions of the middle ages with those of the present, we discover the well-known difference between a corporation and an association. There the members stand to one another in the relation of persons who, therefore, seek to guaranty their entire life in the one combination; here, they appear only as the representatives of limited portions of capital confronted with a definite risk, the average of which may be accurately determined. Hence, the former are of small extent, mostly local; the latter may extend over whole continents, and even over the whole earth. The former have uniformly equal members; the latter embrace men of the most different classes. While the former, therefore, simply govern themselves, often only on the occasion of their festive gatherings, the latter need a precise charter, an artificial tariff and a board of officers.

As the absolute monarchical police-state constitutes, generally, the bridge between the middle ages and modern times, so too the transition from the medieval to the modern system of insurance has been frequently introduced by state insurance.[237-2] [237-3] This was very natural at a time when the guilds of the middle ages had lost their importance, and private industry was not ripe enough to supply the void left by them. The government of a country, far in advance intellectually of the majority of its subjects, may, by force, induce them to participate in the beneficent effects of insurance, and immediately provide institutions extensive enough to guaranty real safety. While it may be called a rule that mature private industry satisfies wants more rapidly, in greater variety, and more cheaply than state industry; in the case of insurance against accidents, especially of insurance against fire, there are many peculiarities found which would make the entire cessation of the immediate action of the state in this sphere, or its limitation simply to a legislative and police supervision of insurance, seem a misfortune. A dwelling is one of the most universal and urgent of wants, and indeed a governing one in all the rest of the arrangements of life. If it be destroyed, it is especially difficult to find a substitute for it, or to restore it. And to the poorest class of those who need insurance, private insurance will, perhaps, be never properly accessible.[237-4] If German fire insurance and the German system of fire prevention be so superior to the English and North American, etc., one of the principal causes is that German governmental institutions so powerfully participate in it.[237-5]

SECTION CCXXXVII (a).

INSURANCE IN GENERAL.—MUTUAL AND SPECULATIVE INSTITUTIONS.

All insurance institutions fall into two classes:

A. Mutual insurance companies, in which the insured are also as a society the insurers, and share the aggregate damage, of a year, for instance, among themselves.

B. Speculative institutions, in which a party, generally a joint-stock company, in consideration of a certain definite compensation (premium agreed upon and paid in advance), assumes the risk.[237a-1]

So far as security is concerned, no absolute preference can be accorded to either of these classes. Mutual insurance companies require to extend their business very largely[237a-2] to be able to meet great damage. And even where the liability of the members is unlimited, care must be taken to distinguish between the legally and the actually possible.[237a-3] The joint capital of a well organized[237a-4] premium-association affords, in this respect sufficient security from the first, but the ratio between its security-fund and the amount of its assumed liabilities becomes less favorable as the business is extended, in case the fund itself is not enlarged.[237a-5] Mutual insurance may accomplish something analogous to that accomplished by a joint-stock fund by collecting a reserve of yearly dues in advance, thus modifying the burdensome vacillation of the amount payable each year.[237a-6] Experience, however, teaches, that the strongest form of mutual insurance, that supported either by municipalities or by the state, has been able to meet extraordinary damage from fire much better than premium-institutions, which are too quickly left in the lurch by the stockholders when the damage is greater than the amount of the stock subscribed. So also loss from fire caused by war or riots is for the most part and on principle, excluded by speculative insurance institutions.[237a-7]

In point of cheapness to the insured, mutual insurance seems to have the advantage, since it contemplates no profit.[237a-8] From a national-economical point of view, also, it is very much of a question, whether the active competition of premium institutions, in a sphere which affords little room for industry proper, is more of a spur to make them "puff up" their claims (Reclamen) or to the simplification of their administration.[237a-9] However, premium-institutions are more easily capable of extending the circle of their business;[237a-10] which of itself decreases the general expenses and strengthens their insuring power. Premium-insurance supposes a greater development of capitalistic speculation than does mutual insurance. But, even in the highest stages of civilization, the competition of some mutual insurance companies is desirable to protect the insured from a too high rate of profit to the insurers.[237a-11] [237a-12] And since the principle of mutual insurance has so little attraction for capitalists in a time like that in which we live that it can be maintained perhaps only by the support of the state or of municipalities, we may consider the desirableness of the state's continuing to participate in some way in the matter of insurance as established.

SECTION CCXXXVII (b).

INSURANCE IN GENERAL.—ECONOMIC ADVANTAGES OF INSURANCE.

The national-economic advantage of insurance consists in this, that the damage which is divided among many, and which, therefore, is felt but lightly by each one, is probably made up for, not by an inroad upon the body of still existing original resources, but by savings made from income. This, indeed, is unconditionally true only of such damage as does not depend at all on the will of man, such as, for instance, the damage caused by hail. On the other hand, there is especially in maritime[237b-1] and fire insurance,[237b-2] a great temptation to culpable and even criminal destruction; to the latter, when the object insured is estimated at too high a value. (Speculation-fires!) And it is difficult to say whether this drawback or that advantage is the greater. But, on the other hand, every kind of insurance is attended by good consequences to the credit of a people. It is of advantage to personal credit, since it prevents sudden impoverishment; but it is by far more advantageous to real-credit (Realcredit = material credit) the pledges of which, while their forms may be destroyed, it preserves the value of; that is their economic essence. This last is most clearly manifest in the case of public insurance institutions, with compulsory participation; while in the case of entirely voluntary insurance, the creditor can never be certain that his debtor has not neglected something necessary. The aggregate danger is less than the sum of individual dangers, for the reason that it is more certain, and that uncertainty of itself is an element of danger.[237b-3] [237b-4]

SECTION CCXXXVII (c).

FIRE INSURANCE.

The present system of fire insurance has been introduced in many places by the establishment of so-called domanial fire-guilds (Domanial-Brandgilden), by which the country population on crown-lands bound themselves to mutually assist one another by furnishing thatch, and horse and hand power in the rebuilding of burned houses. Whatever was wanting after this was made up by gratuitous supplies of wood from the public forests, by the granting of governmental fire-licenses to beg (begging letters), by permission to have collections made in the churches[237c-1] etc. The next step was generally the establishment of public insurance (Landes-Assecuranz) only for houses,[237c-2] but with compulsory membership. This compulsion was justified by the continuing interest of the state in the payment of the house-tax, as well as by the interest of the eventual owner of the estate, and of hypothecation-creditors.[237c-3] [237c-4] The insurance of moveable property is much more recent, both by reason of the nature of the property itself, which becomes of importance only at a later date, and also on account of the much greater difficulty of carrying on such insurance.[237c-5] The thought of making this species of insurance compulsory, or of turning it over to the state, has seldom been suggested.

SECTION CCXXXVII (d).

REQUISITES OF A GOOD SYSTEM OF FIRE INSURANCE.

Among the chief requisites of a good fire insurance system are the following:

A. The adoption in insuring of measures for the prevention of criminal abuse on the part of the insured. No one should be benefited by the burning of his insured goods.[237d-1] Hence, the rates of insurance should be rigidly fixed according to the real value in exchange.[237d-2] In the case of houses, the value of the incombustible elements of value should be deducted; also the value of the ground and the value it possesses from being advantageously situated, etc. The simultaneous insurance of the same object in several companies without proper notice being given should be unconditionally prohibited.[237d-3] The control of all this may be greatly facilitated by requiring foreign insurance companies to obtain a special permit to carry on their business in the country, and to allow them to effect insurance only through responsible home agents.[237d-4] Most insurance companies exclude from insurance personal property which may be easily secreted, such, for instance, as jewels, cash money, valuable documents, etc.

B. There should be a just proportion between the insurance premium and the risk. This depends not only on the style of building of the houses themselves and of those in the neighborhood,[237d-5] on the situation, the too great intricacy (Complicirung) of which extends the ravages of fire, as its too great isolation makes assistance difficult;[237d-6] but also on the nature of the business carried on in them,[237d-7] and on the condition of the local development of fire police. Highly cultured places, especially large cities, are really much less exposed to damage from fire. To not take this into account would be not only to compulsorily dole out charity to the poorer classes of the people, and to the less cultivated portions of the country,[237d-8] but it would indirectly put an obstacle in the way of a transition to the massive construction of houses, and of good, that is, as a rule, of costly fire-extinguishing institutions.[237d-9] On the other hand, administration must be rendered much more difficult by the taking of risks of many degrees of danger, especially as it is scarcely possible, for a long time, to even hope for a statistically unassailable basis of a tariff graded in exact accordance with the risk.[237d-10] If those objects especially exposed to danger should be excluded altogether, the common utility of the institution would be largely diminished; and the insured least exposed to danger would nevertheless have to complain of a relatively too high contribution.[237d-11] If every peculiar class of risks were to be treated as one whole, the insuring principle itself would suffer.[237d-12] Where the nation or municipality engages in the business of compulsory insurance, its too rigid system of rate-fixing has something inequitable in it, inasmuch as it makes the most provident housekeeper suffer from the danger from fire of his neighbor's establishment, a gas factory, for instance.

C. The certainty of compensation for damage suffered. The government should see to it that the institution does not promise more than it can perform with its joint-stock capital and by means of its premiums.[237d-13] The good will of foreign institutions to keep their promises to the letter is best assured by requiring them as a condition precedent of carrying on their business in a country, to bind themselves to litigate only in the home courts. They protect themselves against the risk of very large insurances by the system of re-insurance, by transferring a portion of the premium as well as of the risk to one or more other insurance companies.[237d-14]

D. In all highly cultured quarters, the almost entirely voluntary fire-extinguishing system, in which the people turned out in a body to battle with the flames, made way for the fire-militia system; and if the latter should make place for what we may designate as a standing fire-army which is most easily attained in connection with the fire-insurance system, we should reach the ideal of such a system, especially if the business of insurance was in the hands of the state or of the municipality. Such a system would be in accordance with the principle of the division of labor, and, also, with the fact that usually the most vital interest is the greatest spur to action.[237d-15]

Of the whole number.

Match factories,30.00

Lodging houses,16.50

Hat makers,07.70

Cloth makers,02.60

Candle makers,03.80

Smiths,02.40

Carpenters,02.20

Oil and color dealers,01.50

Book dealers,01.10

Coffee houses,01.20

Beer houses,01.30

Bakeries,00.75

Wine dealers,00.61

Small dealers in spices, 00.34

Eating houses,00.86

In the Leipzig Fire Insurance Company, as 100:1.87

In the Trieste Fire Insurance Company, as 100:1.80

In the Elberfeld Fire Insurance Company, as 100:1.19

In the Aix-Munich Fire Insurance Company, as 100:1.15

In the Cologne Colonia Fire Insurance Company, as 100:2.44

In the Karlsruhe Phœnix Fire Insurance Company, as 100:3.7

In the Berlin Fire insurance Company, as 100:6.3

In the Gotha, about as (including the four fold after payment note)100:2.6