Page:The New International Encyclopædia 1st ed. v. 10.djvu/775

* INSUBANCE. 687 INSURANCE. debts for a number of years, and the average an- nual ratio of losses to credits was ascertained. TUe insurance api)lied only in those jears when the ratio of loss to credits exceeded the average, and covered only the excess of the loss above the average. The failure of three out of four companies is not conclusive evidence that the business cannot successfully be carried on, since the period of depression beginning in 1893 sub- jected them to a severe strain before they were well established. The business of the surviving companies is rapidly increasing, and seems to be reasonably profitable. There are many other interesting applications of the insurance principle which must he passed over without notice. As indications of its pos- sible develojiment may be mentioned the follow- ing instances. The saloon-keepers in a particu- lar city form an a.ssocialion which undertakes to pay an indemnity to any member who is un- able to secure a renewal of liis license; the news- paper piililishers of Finland enter into an agree- ment to indemnify one another for losses incur- red through thcf suppression of particular issues of their papers by the order of the Russian Gov- ernment ; finally, the manufacturers of Austria bind themselves to pay indenmities for losses occasioned oy strikes instituted by workers in their factories. Preventive Activity of Insurance Companies. — In comparing premiums and indemnities for the purpose of ascertaining the actual cost of the administration of the insurance business, it 'is necessary to bear in mind the fact that insurance companies carry on other forms of activity be- sides guaranteeing indemnity. One of the most prevalent of these forms is their preventive ac- tivity, under which name may be included all the efl'orts which the companies make to prevent the occurrence of the event against whose conse- quences they grant insurance. The relative amount of such activity varies greatly in the dif- ferent kinds of insurance. There is very little of it in life insurance. In accident insurance we find the companies distributing books and pam- phlets containing information as to the first aid to the injured. It is in the insurance of property, however, that such activity is most common. In the case of elevator and steam- boiler insurance a very considerable part of the expense of management is due to the systematic inspection of insured elevators and boilers which the companies carrv on. In the early daj's of insurance the distinction between insurance and prevention was not very sharply drawn. The early English fire insurance companies, for example, laid special emphasis on the service which they rendered the community through the maintenance of fire brigades. A sur- vival of this confusion of ideas can be seen in the legislation of many of our States compelling fire insurance companies to support wholly or in part the fire .service of the cities. Vhatever pay- ments the companies make for stich service are made out of the funds oollectod from the insured. The injustice of oomjielling a limited luimher of property-owners, the insured, to support such an institution as the fire department, intended for the benefit and use of the whole community, seems too obvious to need argtunent. While life insurance companies do little or nothing to prevent the occurrence of loss, only a small part of their activity can be strictly called insurance. A very large proportion of the premiums they receive are rather in the nature of investment. The relation between the two forms of activity is discussed in the article on LlFK iNSLa-VNCE. He-insurance. — The custom of re-insurance which prevails to a great e.xtent among insur- ance companies may be brielly described. To avoid the possibility of being called upon to pay excessive indemnities at any lime, insurance com- panies are accustomed to limit the amount ot insurance that they will carry on any one risk. The maximum risk carried by one company may be .$10,000, that of another company $50,000. If a company insures a piece of property for more than the ma.ximum risk it carries, it protects itself by re-insuring the excess in another com- pany. The l)ractice of re-insurance is naturally seldom found among mutual companies, but it is ery common among stock companies. Many of the latter liave from 10 to 20 per cent, of the risks they have assumed re-insured, while occa- sionally one is found with three-fourths of its risks so protected. Conversely, there are com- panies which devote themselves entirely to the practice of re-insurance, issuing no policies di- rectly to property-owners. C. EeL.TIOX of the GoVERNifENT TO INSUB- AXCE. The economic and social value of insur- ance can hardly be overestimated. The applica- tion of the insurance principles in the produc- tion of wealth reduces materially the cost of commodities and services; the proceeds of life insurance policies keep many families from want or charity; while the peace of mind which in- surance creates is certainly of great value. It is therefore of great importance that the system should be widely extended, and that as many people as possible should enjoy its advantages. It is pertinent to inquire whether the manage- ment of insurance by private companies is as efficient as it ought to be; whether there are any a priori reasons for expecting better results from governmental management ; and what has been the experience of such governmental insurance offices as have been already established. The first requisite of a satisfactory system of insurance is security. In this respect no criti- cism can be brought against- the older companies in the established lines of insurance. It must be admitted, however, that while many companies have of their own initiative adopted such methods as are calculated to secure their stability, tnany others have been reckless or even dishonest in their uuinagement. The total amount of money collected in the form of insurance premiums by companies which have failed to make the agreed returns to the insured is very large. The gen- eral high level of security in the insurance busi- ness in the United States is dtie to no small ex- tent to the stringent requirements of the insur- ance departments in the various States. The second requisite of a satisfactory system of insurance is cheapness, premium rates as low as is consistent with safety. In this respect the results of private underwriting leave much to be desired. .-Vs already pointed out. unrestricted competition would be both an im]>erfect and an ex-tremely costly method of resulating rates. As a matter of fact, in the United States, competi- tion has comparatively little influence in fixing rates or compelling economies of management. In all lines of insurance the rates are fixed by