[Footnote 237a-7: Nearly three-fourths of the public insurance inst.i.tutions insure also against fire caused by war (Mitth., 1874, 85), a matter of importance even as war is waged in our own days, since in 1870-71, the damage from fire by the Franco-Prussian war in France was estimated at 141,000,000 francs. (Mitth., 1873, 33.)]
[Footnote 237a-8: In Prussia, the mutual fire insurance companies, in 1865 and 1866 had an administration outlay of 0.24 and 0.22 per 1,000 of the amount insured; the premium insurance companies of 0.80 and 0.96; the latter doubtless including large a.s.sessments for common purposes. (Preuss.
Statist. Ztschr., 1868, 269.) In all Germany, the outlay for administration is, for public inst.i.tutions, 4 per cent. of the contributions; for premium inst.i.tutions, inclusive of their dividends, 37.1 per cent.; for the more important French private inst.i.tutions, even 68.8 per cent. (Mitth., 1874, 89, 92.)]
[Footnote 237a-9: German public fire insurance inst.i.tutions generally have a territory of their own, in which that inst.i.tution is the only one of the kind. On the other hand, the premium inst.i.tutions in the whole empire keep about 80,000 agents, i. e., a number 50 times as large as the number of officers of the former, (loc. cit. 90.)]
[Footnote 237a-10: Mutual insurance companies, as they have extended, have sometimes split up into several; for instance, the insurance companies against damage by hail at Lubeck, Gustrow, Schwedt and Griefswald, daughters of that at New Brandenburg.]
[Footnote 237a-11: The founder of the Mutual Fire Insurance Company of Gotha expressed the hope that in it, it would be possible to insure 60 per cent. cheaper than was customary in the joint stock companies of the time. In the system of agricultural _Einzelhofe_ in Germany, small mutual insurance companies are possible, and insurance then may be very cheap.]
[Footnote 237a-12: On the premium a.s.sociations, _Bernoulli_ Ueber die Vorzuge der gegenseitige Branda.s.scuranzen vor Pramiengesellschaften, 1827. _Per contra_, _Masius_, Lehre der Versicherung und Statische Nachweisung aller V.
Anstalten in Deutschland, 1846. In Prussia, premium a.s.sociations are growing more rapidly than mutual: the per capita amount on the whole population insured in the former against damage from fire in 1861 was 116.6 thalers; in 1866, 154.2; in 1869, 176.6; in the latter in 1861, 103.5; 1866, 124.3; 1869, 154.3 thalers. (_Engel_, Statist. Zeitschr., 1868, 268 ff.; 1871, 284 ff.) In France, in the former, in 1857, almost 36 milliards of francs; in the latter, in 1864, 13 milliards. (Mitth., 1871, 51.)]
SECTION CCx.x.xVII (_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 inst.i.tutions, with compulsory partic.i.p.ation; 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]
[Footnote 237b-1: Even in Demosthenes" oration against Zenothemis, we may see how easily the a.n.a.logy of maritime insurance may lead to criminal destruction of property.
Similar cases mentioned by _Pegolotti_ before the middle of the 14th century. (Delia Decima dei Fiorentini, III, 132.)]
[Footnote 237b-2: French experience teaches that during a commercial crisis there are more fires in mercantile magazines than at other times; while in times when sugar is a drug in the market, etc., many sugar factories are burned.
(Dictionnaire de l"Econ. polit, I, 88.) The style of our house-building and fire-extinguishing inst.i.tutions is wont to improve with economic culture. Hence, for instance, in Mecklenburg, 1651 to 1799, cities burned down, in whole or in greatest part, 72 times; 1800 to 1850, only once.
(_Boll_, Gesch., von Mecklenb., II, 618 ff.) However, in many countries the damage caused by fire has largely increased: in Baden, for instance, by 100,000 florins a year. Insurance capital, 1809 to 1818, 65 fl.; 1819 to 1828, 128 fl.; 1829 to 1836, 152 fl. (_Rau_, Archiv, III, 322.) Similarly in Switzerland. In Bavaria, of every 10,000 buildings insured, in 1856-60, there were 4.6 fires per annum; 1861-65, 5.04; 1866-69, 8.67. (Preuss. Statist.
Ztschr., 1871, 315.)
In Saxony, in 1849-53, there was one fire in every 290 buildings; 1854-58, in every 201; 1859-63, in every 180. Of these fires, 68 per cent. of the whole number were from known causes, i. e., 36.4 per cent. from incendiarism; 28.5 per cent. from negligence. (Sachs, Statist. Ztschr., 1866, 106, 115.) Even in antiquity, similar evil consequences attended the generosity which gratuitously compensated damage by fire. Compare _Juvenal_, III, 215 ff.; _Martial_, III, 52. In England, of every 128 cases of damage by fire of "farming stock," 49 were caused by incendiaries, for the most part actuated by revenge. Hence, there, a notice is posted on insured buildings by the insurance companies which runs: "this farm is insured; the fire office will be the only sufferer in the event of a fire." In London, of every seven fires among the small trading cla.s.s, one is estimated to have been the work of an incendiary, and of all fires at least one-third (Athenaeum, 2, Nov., 1867), if not one-half (Mitth., 1879, 100). One of the largest English fire insurance companies estimates that the introduction of the lucifer match has caused it a damage of 10,000 per annum.
Of 9,345 fires, 932 were ascribed to gas, 89 to certain, and 76 to doubtful, incendiarism, 127 to lucifer matches, 8 to storms, 100 to negligence, 80 to drunkenness, 2,511 to the catching fire of curtains, 1,178 to candles, 1,555 to chimneys, 494 to stoves, 1,323 to unknown causes. (Quart.
Rev., Dec, 1854, 14 ff.) Fires originate from criminal (_dolose_) causes most frequently when a new stage in the politico-economical development of a people is reached, which renders the buildings put up in a former and lower stage of development insufficient.]
[Footnote 237b-3: A Prussian fire insurance regulation, as far back as 1720, expressly says: "everybody scruples to make the least loan on pledged houses in towns." "Every care shall be taken to make the least possible amount of loans in cities." (_Jacobi_, in _Engel"s_ Zeitschr., 1862, 122.) _Leib_, Dritte Periode, etc., 1708, cites a proverb to the effect that, in Hamburg, "no house takes fire;" that is, at a time that its fire-fund-system (_Brandka.s.senwesen_) had as yet found few imitators, _v. Justi"s_ proposition to combine the insurance of houses against fire with a loaning-bank for houses. (Polizeiwissenschaft, 1756, I, -- 7, 8 ff.) In Russia, in 1815, the loaning bank was the only fire insurance company, which however a.s.sumed risks only on stone houses at three-fourths of their value in consideration of 15 per 1,000 annual premium. (_Rau_, Lehrbuch, I, 229.)]
[Footnote 237b-4: _Spittler_, Politik., 441, objects to insurance that it diminishes benevolence and approximates to communism, thus. .h.i.tting the dark side of all very high civilization.]
SECTION CCx.x.xVII (_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 a.s.sist 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-a.s.securanz_) 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.
[Footnote 237c-1: Thus in Austria, even after the middle of the 18th century: _Schopf_, L. W. des ost. Kaiserstaates, I, p. 175. In the mandate of the electorate of Saxony of Dec.
7, 1715; but the fire-fund (_Feuerka.s.se_) of 1729 depended on voluntary but regular collections, besides which it obtained certain contributions from the state and the church. Those who gave nothing, however, were threatened with getting nothing, or very little, in case of fire.
Parties desiring to rebuild ma.s.sively had especially much to expect. (Cod. August Forst., I, 538.) The charters of the oldest German _Landesbrandka.s.sen_ contain a provision that, in future, no further fire-collections shall be allowed.]
[Footnote 237c-2: The English Hand-in-Hand Fire Office for houses, founded in 1696; the Union Fire O., for houses and movable property, in 1714: both mutual inst.i.tutions. The premium-inst.i.tution, the Sun Fire Office, 1710 (_Frankenberg_, Europ. Herold, 1705, II, 181), mentions fire insurance as a special characteristic of England. But we may trace fire insurance on buildings and harvest supplies in the low countries about the Vistula in Prussia, even as far back as 1623. (_Jacobi_, loc. cit., 131.) Brandenburg fire-fund, 1705, with voluntary admittance of all houses, and fixed relation between the yearly contribution and the insurance capital. If a fire happened, the fund repaired the damage caused to the fullest extent its means allowed.
(_Mylius_, Corp. Const. March. V., I, 174 seq.) Even in 1706, it became necessary to prohibit speaking ill of the inst.i.tution. It was, therefore, abolished later. The first Wurtemberg private fire insurance company, 1754, founded on similar principles, and which was still existing in 1760, had a like fate (_Bergius_, Polizei und Camerelmagazin, III, 40 ff.), but it was exchanged in 1773 for a mutual public company. In Berlin a mutual insurance company in 1718 (_Bergius_, Cameralistenbibliothek, 151); in Denmark, 1830 (_Thaarup_, Dan. Statist., II, 173 seq.); in Silesia, 1742; Calenberg-Grubenhagen, 1750; in Baden, 1758; in Kurmark, 1765; in Hildesheim, 1765; in Hesse-Darmstadt, 1777. In France, the Parisian inst.i.tution of 1745 is considered the oldest. (_Beckmann_, Beitr. z. Gesch. d. Erfindd., I, 218.)]
[Footnote 237c-3: In Galenberg-Grubenhagen only the _Bauerhofe_ subject to the common burthens were obliged to enter, in Hildesheim, all houses subject to taxation; in Darmstadt all house-owners who were allowed only a _dominium utile_. In Kurmark, the subjects of the estate might be compelled to enter by their lords, but could not be kept out. Of Prussian companies in 1846, entrance was compulsory only in those of East Prussia and Posen. In Wurtemberg compulsion since 1773; confirmed in 1853. Also in Zurich, Jan. 24, 1832; in Schaffhausen Nov. 27, 1835. In Berne, only for state, munic.i.p.al and mortgaged houses; for the latter only so far as it was not expressly left to the creditor.
Introduced into Baden in 1807, after most of the parishes (_Gemeinden_) had voluntarily accepted it; confirmed in 1840. The provision that at least no judicial hypothecation should be made on an un-insured house is found in the Darmstadt law of 1777, -- 13, and in that of Mainz of 1780, art. I, -- 15. _Rau_, Lehrbuch, II, -- 25 a., finds compulsion in the case of property in common and in that of property belonging to other persons very appropriate. It is a matter worthy of thought, that, in cities like Berlin, Breslau, Thorn and Stettin, compulsory fire insurance is still retained. In Upper Silesia, the abolition of compulsory provisions has had for effect to cause 52 per cent. of all buildings to be insured. (Press Zeitschr, 1867, 329).]
[Footnote 237c-4: Question of introducing state insurance into Hungary. As a cultured land, and one rich in capital, is better adapted to insurance, it would be folly to "emanc.i.p.ate" ones self from Trieste, etc. in this respect.
But, on the other hand, only state-insurance can attract the Hungarians and make them feel universally the want of insurance. A reconciliation of these opposing views might be effected by compelling the peasantry to insure their farm houses, and allowing complete liberty in the cities and with reference to movable property.]
[Footnote 237c-5: Even _Bergins_, Polizei und Cameralmag., III, 80, 1768 ff., doubts the possibility of the insurance of movable property. Insurance of movable property of the Evangelical clergy in the electorate of Mark, in which, however, only movable property of the value of 400 thalers is considered. But by this provision the changeableness of the object, which so facilitates fraud, was done away with.
Hamburg joint-stock company for the insurance of movable property, 1779. Electorate of Saxony fire-fund for movable property, 1784-1818, which, however, made good, as a rule, only 25 per cent. of the damage caused. In Prussia, in 1814, there were only 12 insurance companies in which movable property could be insured. In the aggregate even they were but of little extent, and had generally a partnership, guild, or communal basis. (_Jacobi_, loc. cit, 123.) On the other hand, in 1869, there were in all the mutual insurance companies, 530,600,000 thalers worth of movable property insured, besides 2,814,800,000 thalers worth of immovable property, and 366,100,000 thalers worth of property of a mixed nature, partly movable and partly immovable. (Preuss.
Statist. Zeitschr., 1876, 298.)]
SECTION CCx.x.xVII (_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 doc.u.ments, 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 a.s.sistance 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 cla.s.ses 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 ma.s.sive construction of houses, and of good, that is, as a rule, of costly fire-extinguishing inst.i.tutions.[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 una.s.sailable 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 inst.i.tution 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 cla.s.s of risks were to be treated as one whole, the insuring principle itself would suffer.[237d-12] Where the nation or munic.i.p.ality 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 inst.i.tution 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 inst.i.tutions to keep their promises to the letter is best a.s.sured 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 munic.i.p.ality. 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]
[Footnote 237d-1: The former almost unrestricted liberty of the American system of insurance has recently been curtailed, in most of the states, by a rigid governmental superintendence, by special insurance boards with power to permit companies to engage in the business of insurance, and endowed with the right of imposing proper penalties, but of declaring the privilege forfeited at the end of any year.
Compare _Bramer_ in III, Erganzungshefte der Preuss.
Statist. Ztschr. und Mitth., 1871, No. 1.]
[Footnote 237d-2: The first fire insurance provisions or regulations paid little attention to the danger of over-valuation. Similarly _v. Justi_, Abh. von der Macht, Gluckseligkeit, etc., eines Staats. 1860, 81. Also _Krunitz_, Oekonom. Encyclopaedie, 1788, XIII, considers it improbable that any one would have his home insured at a higher than its real value. On the other hand, there were formerly bitter complaints made in the United States that the agents, on whom the determination of the rate of premium and the control of the insurance-sum depended chiefly, were led to make over-valuations in furtherance of their own interests. (Mitth., 1871, 3; 1874, 95.)]
[Footnote 237d-3: If the valuation were made to depend on the purchase price or on the cost of replacing or restoring the damaged property, even this would be some temptation to not entirely upright men. Hence the Baden law of 1840 expressly provides that instead of this, the selling price shall be the basis; the law of 1852, -- 17, the medium cost of the combustible parts, after deduction made of the diminution in value caused by age. The fixing of premiums in the case of houses should be repeated from time to time on account of wear. According to the Calenb. Grubenh. law of 1823, -- 21, every 10 years. According to the Baden law of 1852, -- 28, 33, and the Wurttemberg law of 1853, -- 12, the city council should examine annually in what cases a new valuation was necessary. The more certainly over-insurance is avoided, the less need is there of the superintendence policy adapted to a rather barbarous state of insurance, that only a part of the value shall be made good. The Phnix fire insurance company in Baden for the insurance of movable property has reserved the right to investigate at any time and to satisfy itself as to the value of the insured object, and to lower the amount insured in accordance with its own opinion. The provision that the valuation shall be made by the authorities of the place, or that it shall be approved by them is frequently found. In Saxony, for instance (law of Nov. 14, 1835), the Leipzig city council gives its approval when it finds the amount insured in keeping with the means of the insured, and entertains no suspicions as to his honesty. To what a bad state of things a less liberal course leads, see in _Masius_, loc. cit., 85. This indeed is only difficult in large cities. It is also to be considered that it is not so much the many small amounts, but the few large ones that are dangerous to insurance. The Prussian scheme wanted to give up the police superintendence of insurance, but to punish over-insurance of more than 5 per cent. of the common value, by imposing a fine equal to the amount of over-insurance on the insured, the agents, and on the conductors of the business. (_Jacobi_, in II. Erganzhefte der Preuss. Statist.
Ztschr., 1869.) The provision that the amount paid as damages for a burned house shall be immediately employed in rebuilding, is to be explained in part by requisite A; in part also by the same police-guardianship against presumed negligence which introduced compulsory insurance.]
[Footnote 237d-4: Compare _Brugemann_, Die Mobiliar V. in Preussen nach dem G. von 1837.]
[Footnote 237d-5: _Oberlander_, loc. cit. 108, calls insurance without cla.s.sification of risks, a "mutual benevolent inst.i.tution;" and one rigidly cla.s.sified according to the probable period of burning, "an inst.i.tution for the making of advances" (_Vorschuss-Anstalt._) In Baden, even in 1737, there was no difference made between a ma.s.sive building and a wooden hut with a straw roof in the Black forest. (_Rau_, Archiv., III, 324.) Here, there was in 1844 to 1849, an average damage by fire in houses with brick roofs of 1,302 florins, with thatch roofs of 1,786 florins, with shingle roofs of 2,292 florins, to say nothing of the greater frequency of such damage in each succeeding cla.s.s.
(_Rau_, Lehrbuch, II, 1, -- 26, a.) In Wurttemberg, before 1843, the owners of insured personal property, in houses with thatch roofs, had, in the same time, received 22 per 1,000 compensation for damage; in houses with brick roofs, from 8 to 9 per 1,000. (_Rau_, loc. cit.) In 17 German insurance companies, between 1866 and 1869, ma.s.sive buildings with hard roofs paid 1,003,000 thalers and received 612,000 thalers; the not ma.s.sive with hard roofs paid 1,544,000 thalers and received 1,339,000; houses with soft roofs paid 2,420,000 and received 2,792,000. (Preuss, Statist. Zeitschr. 1861, 327.) Similar observations made in Berne during 23 years.]
[Footnote 237d-6: While in most English insurance companies, there are only three cla.s.ses: common, hazardous, and doubly hazardous, in Rhenish Prussian insurance companies, there are seven, according to the style of building, and in each cla.s.s two subdivisions, according to the location.]
[Footnote 237d-7: According to an English average of 15 years, there is some damage from fire yearly in the following cla.s.ses of buildings and on the following percentages:
_Of the whole number_.
Match factories, 30.00 Lodging houses, 16.5 Hat makers, 7.7 Cloth makers, 2.6 Candle makers, 3.8 Smiths, 2.4 Carpenters, 2.2 Oil and color dealers, 1.5 Book dealers, 1.1 Coffee houses, 1.2 Beer houses, 1.3 Bakeries, 0.75 Wine dealers, 0.61 Small dealers in spices, 0.34 Eating houses, 0.86
(Quart. Rev., 1854, 23.) There is indeed a difference in the intensity of these fires. For instance, in inns, there have been a great many; but the damage has been for the most part insignificant.]