Chapter XCVII: 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]

[Footnote 237b-1: Even in Demosthenes' oration against
Zenothemis, we may see how easily the analogy 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 institutions 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. (Sächs, 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 class, one is estimated
to have been the work of an incendiary, and of all fires at
least one-third (Athenæum, 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 (_Brandkassenwesen_) 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 assumed 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 hitting the dark side of all very high
civilization.]