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INSURANCE
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INSURANCE , a See also:term meaning generally "making oneself safe against " something, but specially used in connexion with making See also:financial See also:provision against certain risks in the business of See also:life . The terms Assurance and Insurance are in See also:ordinary usage synonymous, but in the profession " assurance " is See also:con-fined to the " life " business, and " insurance " to See also:fire, marine and other See also:miscellaneous risks . Assurance was the earlier term, and was used of all forms of insurance indiscriminately till the end of the 16th See also:century . Insurance—in its earlier See also:form, " ensurance "—was first applied to fire risks (see See also:note s.v . " Insurance " in the New See also:English See also:Dictionary) . I . See also:GENERAL See also:HISTORY During the latter See also:half of the 19th century the practice of insurance extended with unprecedented rapidity, partly in novel forms . While its several branches, such as life insurance, casualty insurance and others, have each had an See also:independent and characteristic development, all these together form an institution See also:peculiar to the See also:modern See also:world, the origin and growth of which attest a remarkable See also:change in men's ideas and habits of thought . The simplest and most general conception of insurance is a provision made by a See also:group of persons, each singly in danger of some loss, the incidence of which cannot be foreseen, that when such loss shall occur to any of them it shall be distributed over the whole group . Its essential elements, therefore, are foresight and co-operation; the former the See also:special distinction of civilized See also:man, the latter the means of social progress . But foresight is possible only in the degree in which the consequences of conduct are assured, i.e. it depends on an ascertained regularity in the forces of nature and the See also:order of society . To the See also:savage, life is a lottery . In See also:hunting, rapine and See also:war, all his interests are put at See also:hazard . The hopes and fears of the gambler dominate his impulses . As nature is studied and subdued, and as society is See also:developed, the See also:element of See also:chance is slowly eliminated from life . In a progressive society, See also:education, See also:science, invention, the arts of See also:production, with See also:regular See also:government and See also:civil order, steadily See also:work together to narrow the See also:realm of chance and extend that of foresight . But there remain certain events which may disturb all anticipations, and in spite of any man's best See also:wisdom and effort may deprive him of the fruits of his labour . These are mainly of two classes: (I) damage to See also:property by the See also:great forces of nature, such as See also:lightning and See also:hail, by the perils of the See also:sea and by fire; (2) premature See also:death . A useful life has an economical value . But no skill can make certain its continuance to its normal See also:close . In the reasonable expectation that it will last until a competence is gained or the See also:family ceases to be dependent, See also:young men marry; but some will See also:die too soon, and in the aggregate multitudes are See also:left destitute . Both classes of loss are alike, in that they fall on individuals in the See also:mass who are not known beforehand nor selected by any traceable See also:law . But the sufferers are ruined, while the same pecuniary loss, if distributed over the whole number, would be little See also:felt . Wherever the sense of community has existed this has been discerned, and some effort made to See also:act upon it .
Thus in feudal See also:Europe it was customary for the houses of vassals to be restored after fire at the cost of the See also:estate
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In See also:England in the 17th century the government practised a method of See also:relief after accidental fires
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When such a loss was proved to the See also:
1300
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During the next century the risks of insurance for the usual voyages between See also:London and See also:European ports were carefully considered, and customary rates became established
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In his address in opening See also:
Although the underwriters at Lloyd's often considered and assumed other than marine risks, and made contracts some of which were merely wagers on public or private events, there is no See also:record of insurances by them against fire on See also:land
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But fire insurance, it is vaguely known, had previously been practised, in a crude form, in several European cities
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In 1635, and again in 1638, citizens of London petitioned See also:
But the courts put a speedy end to this See also:movement, holding that the See also:charter conferred on the city no See also:power to transact such business
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Thus the socialistic theory that insurance is properly a See also:branch of government is almost as old as the business itself, though it has never found favour or been practically tested on a large See also:scale in Great See also:Britain or See also:America
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The next notable step in the See also:evolution of modern methods was the organization of mutual insurance associations
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In 1684 the Friendly Society was organized
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Each member paid a small entrance fee for expenses, made a See also:cash See also:deposit as a reserve for emergencies, to be returned at the end of his term, and agreed to meet equitable assessments for current losses
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Payments were computed on the See also:assumption that one house in 200 is burned every fifteen years
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The rivalry between the proprietary and the mutual systems began at once, and has continued till now
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In 1686 "the Fire Office at the back side of the Royal Exchange" petitioned for a patent of the fire insurance policy and a mono-poly of its issue for See also:thirty-one years
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The Friendly Society opposed the See also:
But the Fire Office must pay the See also:ordinance service for its work in extinguishing fires, the amount to be fixed for each fire by the king
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This was the first appearance of the See also:plan, so widely prevalent in after years, of imposing on insurance companies the support of fire departments; that is, of taxing the prudent who insure to protect the reckless who do not
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After i688 the See also:atmosphere of England was freer, and under-See also:writing was soon practised without special See also:licence In 1704 the See also:societies began to insure See also:household goods and See also:stocks in See also:trade, and the insurance of See also:personal property rapidly became as important as that of buildings
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In 17o6 the See also:Sun Fire Office was founded, and began to issue policies on both real and personal property in all parts of England
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Other associations arose in See also:quick See also:succession of which the See also:Union Fire Office, dating from 1714, and the See also:Westminster from 1717, still survive
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Before 1720 both fire and marine insurance had become general in all great centres of trade
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But life insurance was as yet hardly conceived
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Sporadic evidences that it was needed, and that men were feeling after it, occur in very See also:early records
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It was a See also:medieval See also:custom to advance to a mariner goods or money, to be restored with large additions, but only in case of safe return; or to contract, for a sum in See also:hand, to See also:ransom him if captured by pirates; or to pay a fixed amount to his family if he were lost
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To evade the See also:usury See also:laws life annuities were often sold at a See also:low rate, redeemable for a stipulated sum Life estates were sold upon some guess at their probable duration; and leases, especially of See also: Sixteen underwriters signed it, each severally for his own See also:share, and the premium was 8 % The See also:age of the insured is not referred to, nor was it then considered, except when far advanced, in fixing the premium, Gibbons died on the 29th of May 1584 . The underwriters refused to pay, alleging that twelve months, in law, are twelve times twenty-eight days, and that Gibbons had survived the term . The See also:court, of course, enforced See also:payment . A few instances of similar contracts are found, mostly in judicial records, during the 17th century; but every such transaction was justly regarded as a mere See also:wager, at least on the part of the insurer It could not be otherwise until the principles of See also:probability and the uniformity of large averages were understood and trusted A few great thinkers were groping for principles which were profoundly to modify the practical reasoning of after-generations . But their work first obtained wide recognition upon the publication of the Ars Conjectandi, the See also:posthumous See also:treatise of Jacques See also:Bernoulli, in 1713 . Meanwhile the social need for insurance continued to See also:express itself in empirical efforts, which at least helped to make clearer the problems to be solved . Thus in 1699 "The Society of Assurance for Widows and Orphans" was founded in London, a crude form of what is now called an See also:assessment See also:company . Each of 2000 healthy men under fifty-five years of age was to pay Ss. as entrance fee, is. quarterly for expenses, and Ss. at the death of another member; and at his own death his estate should receive £Soo, less 3% . On See also:default in any payment his interest was forfeited . The society lasted about eleven years, and the accounts of its eighth year are preserved, showing the payment of £5200 upon twenty-four claims The economic significance of this society lies in its distinct recognition of the principle of association for the See also:distribution of losses . Together with the Friendly Society, it shows that this principle had now been so widely grasped by business men that, when embodied in a practical venture, it found substantial support . The conception of a See also:corporation as an artificial See also:person to hold property and support obligations uninterrupted by the death of individuals was found in See also:Roman law and custom . Its first use in modern business enterprise was perhaps the See also:Bank of St See also:George in See also:Genoa, about A.D 1200, a See also:joint-stock company with transferable shares, whose owners were liable only to the amountof their shares . In England the See also:crown, itself the See also:chief and type of corporations See also:sole, was the source of chartered rights, and from about 1600 the principle steadily gained recognition, the advantages of See also:incorporation being attested by the successes of the great trading companies . Experience showed that the corporate form was the obvious remedy for the chief difficulties in the practice of insurance . Single risks were but speculative wagers; a great number must be taken together to obtain a trustworthy average . A larger capital than an average private See also:fortune was demanded as a guaranty, and this capital must not be exposed to the dangers of trade, but set aside for the special purpose . Individual underwriters may die or fail; only a permanent institution can be trusted in See also:long contracts Several projects were devised on this basis . Early in the 18th century, indeed, the English government refused a charter for marine insurance, declaring that corporate insurance was an untried and needless experiment, while private underwriting was satisfactory and sufficient But zn 1720, when two sets of promoters offered £300,000 each for a charter, exclusive of other associations though not of individuals, to insure marine risks, parliament chartered the Royal Exchange and the London Assurance Company with a monopoly to this extent . The business disappointed its projectors at first, and the government accepted half the See also:price rather than revoke the grant . In 1721 the companies extended their operations to fire insurance throughout England . Thus the principle of insurance had now become a distinct part of the common stock of thought in enlightened nations, and gradually, by association with successive new ideas, plans and methods, was developed into a business or trade, which before the See also:middle of the 18th century already formed an essential element of the social See also:scheme . Most of the modern forms of insurance against the elements were known, and at least crudely practised . But there was no scientific basis for the business . Premiums were fixed, not by computation from known tacts or reasonable assumptions, but by guess and the higgling of the market . Only the competition of capital checked the extortionate demands of underwriters . The first important steps towards a scientific valuation of hazards were taken in dealing with the class of risks hitherto so much neglected, those which depend upon human mortality: Marine and fire insurance had their origin in the pressure of need . The practice began before a theory existed . But life insurance had its origin in the scientific study of the facts of human mortality . Both marine and fire insurance became general before there was any intelligent study of the risks by statistical or mathematical methods, nor can it be said that much progress has since been made towards establishing a scientific basis for the valuation of risks in these classes . But life insurance may be said to have been impossible until the theory of probabilities had become a recognized part of the common stock of ideas . The value of insurance as an institution cannot be measured by figures . No direct See also:balance-See also:sheet of profit and loss can exhibit its utility . The insurance contract produces no See also:wealth .. It represents only See also:expenditure . If a thousand men insure themselves against any contingency, then, whether or not the dreaded event occurs to any, they will in the aggregate be poorer, as the direct result, by the exact cost of the machinery for effecting it . The distribution of property is changed, its sum is not increased . But the results in the social See also:economy, the substitution of reasonable foresight and confidence for See also:apprehension and the sense of hazard, the large elimination of chance from business and conduct, have a supreme value . The direct contribution of insurance to See also:civilization is made, not in visible wealth. but in the intangible and immeasurable forces of character on which civilization itself is founded . It is pre-eminently a modern institution . Some two centuries ago it had begun to See also:influence centres of trade, but the mass of civilized men had no conception of its meaning . Its general application and popular See also:acceptance began within the first half of the loth century, and its commercial and social importance have multiplied a See also:hundred-See also:fold within living memory . It has done more than all gifts of impulsive charity to See also:foster a sense of human brotherhood and of common interests . It has done nfore than all repressive legislation to destroy the gambling spirit . It is impossible to conceive of our civilization in its full vigour and progressive power without this principle which unites the fundamental law of practical economy, that he best serves humanity who best serves himself, with the See also:golden See also:rule of See also:religion, " See also:Bear ye one another's burdens." II . CASUALTY AND MISCELLANEOUS INSURANCE Before proceeding with an See also:account of the See also:standard institutions of fire and life insurance, it is proper to glance at the modern vast See also:extension of casualty insurance, and to See also:notice certain novel applications of the insurance principle to other special classes of events . The novelty of these enterprises, however, is not in the general See also:idea underlying each of them . In almost every instance in which insurance has been extended, so as successfully to See also:cover new kinds of risks, it will be found that the See also:suggestion is nearly as old as the practice of life insurance . Many more kinds of insurance than are even now found useful were attempted more than a century ago . But no statistical basis then existed for determining the probability of loss from various casualties, nor had the methods of canvassing, accounting, proving and checking losses, reached the perfection now recognized as necessary for efficiency and safety . The various branches of business which, in distinction from the great standard institutions of life, fire and marine insurance, are commonly treated as miscellaneous insurance, differ widely in their subjects and methods . The most general of them, and that most widely known, is insurance against personal injury by accidents of every See also:kind . Much has already been done by the companies in See also:collecting and analysing facts, so as to determine the average risk of injury and disablement among different classes of men . But there is as yet no such union of effort among them to combine their resources for such purposes as among the life companies, nor does the subject admit of treatment so exact as that of human mortality . Hence it is impossible to speak of a theory of See also:accident insurance in a scientific sense; and in its practice premiums and necessary reserves are determined by the trained business See also:judgment of individual managers rather than by the calculations of actuaries from statistical collections of facts . The insurance of railway travellers against injury upon trains was the first form of accident insurance which proved widely acceptable . This is still practised as a special business by several companies, tickets, entitling the purchaser or his family to a fixed See also:compensation in case of his injury or death, being offered for See also:sale with the railway tickets . But the development of insurance against personal injuries, which is most characteristic of the times, is the wholesale insurance of the employer against liability to the employed for accidental injuries sustained in his service . This was first undertaken on a large scale by the " Employers' Liability Assurance Corporation of London," founded for the purpose in 188o, immediately after the passage of the Employers' Liability Act by parliament, which made employers of labour liable for injuries sustained in their service to an extent unknown to the common law . The Workmen's Compensation Act 'See also:cob greatly extended the classes of employers liable for accidents to their servants, and the number of companies devoting themselves to accidents and workmen's compensation has greatly increased, while practically every fire insurance office has taken up the business . The policies are issued to employers of labour, agreeing to indemnify them for any loss to which they may be subjected, at common law or by See also:statute, in consequence of bodily injuries suffered by any employee while engaged in their service . In some cases the insurance company undertakes the investigation and See also:settlement of each claim within the limits prescribed by the policy, and conducts any litigation which may result . The See also:adjustment of See also:damages can be made with more economy and skill by the companies than is usually possible for the employer, and the danger of fraudulent claims is largely reduced by methods experience has taught them . The price charged for such insurance is either a small percentage of the aggregate See also:wages paid during the term, or a standard rate for each particular class of employment,or (in the case of large employers of labour) an " all-See also:round " rate designed to cover every class of employee . The most common form of accident insurance, however, is still represented by the policy which promises the assured a fixed sum in case of death by accident, and a weekly compensation during See also:disability from such a cause . Many policies also specify a sum to be paid for the loss or permanent damage of a member, as an See also:eye, a hand or See also:foot . Another extension of the personal accident policy is the addition of some form of See also:health insurance, especially the grant of a weekly sum to the insured during incapacity for work caused by certain named diseases . Besides the ordinary joint stock companies which carry on this class of business with fixed premiums, many associations organize for insurance against personal injury by accident, relying upon the assessment of members to pay claims as they mature . Many of these are See also:local and ephemeral; but a number of them, formed by men engaged in common pursuits, for mutual See also:protection, have attained importance . Such are especially some of the commercial travellers' and the railway employees' accident associations, and a few connected with the Masonic or similar See also:beneficiary orders . Another large class of casualty insurances applies to various forms of damage to property . The branch which seems most to have attracted promoters is the insurance of See also:plate See also:glass against fracture, which is carried on by a number of companies in Great Britain, and is the only business of several of them . In the United States there are five corporations which insure plate glass alone, while many other casualty companies issue also policies on glass . This business is not conducted in any other See also:country upon so large a scale as in the United States, but is attracting more attt:nticn than heretofore in Europe, and especially in Great Britain . There are several companies in the United Kingdom and in America which make the insurance against damage by the See also:explosion of See also:steam boilers a special feature of their work, but by far the greater part of the business is transacted by one company in each country . The service rendered is one of special skill and vigilance, extending far beyond the contract for See also:indemnity . The company, in fact, employs inspectors of the highest scientific qualifications, who assume See also:constant supervision of the machinery, and require. its structure and conduct to be freed from elements of danger . It is prevention rather than compensation that is sought, and the outlay made by the companies is mainly for inspection and See also:control, not for losses . It is usual to promise in a policy upon a steam See also:boiler some compensation also for any personal injury which may result from an explosion . There are some companies in England having insurance against See also:burglary for their See also:principal purpose, while several of the British and See also:American accident companies issue policies of this kind . It is some-what of an experiment, and the risks taken are for moderate sums, at premiums determined in each case by an estimate of the danger founded on a study of all the circumstances . There is no See also:information published concerning this branch of insurance in other countries, but the aggregate premiums paid are not at See also:present very large . It is believed by many that there is an important future for burglary insurance, in connexion with improved methods of protection, by See also:safes, automatic alarms and constant inspection, for dwelling-houses, shops and offices, which are often unoccupied . Insurance against damage to growing crops by hail is practised in several parts of Europe and America, commonly by small local associations on the mutual plan or as an incident to the business of fire insurance . No See also:statistics can be obtained of these operations . The same is true of the insurance against the ravages of tornadoes, and against sickness and accident in domestic animals . A wholly distinct business, commonly classed as a branch of insurance, has now grown to great importance, that of guaranteeing the fulfilment of contracts and of indemnifying employers against defalcations in their service . The See also:bond of a corporation of large capital is widely taking the See also:place which personal See also:surety has filled in connexion with undertakings on contract, and with offices and occupations of See also:trust, both in public and in private life . Fidelity insurance is carried on by a few of the general casualty companies, but as the practice of it extends it becomes more and more the work of special institutions organized for this purpose alone . In the United States there are many corporations of excellent See also:standing, with aggregate paid-up capital of more than $15,0oo,00o and surplus funds of nearly $lo,000,000 more, and collecting in premiums about $4,000,000 annually upon bonds and guaranties amounting to more than $1,250,000,000 . The business practically only started at the close of the 19th century . It has had similar if not equal development in Great Britain and in several other countries, but it is only in the United States that the statistics of it are officially collected . The insurance of titles to real property is also becoming widely extended . This business, however, has indemnity for losses as but an incidental purpose . The principal aim is to furnish a final and responsible assurance that the See also:title is flawless . Several of the companies in the United States possess elaborate and expensive collections of records, covering the See also:sources of title for cities or large districts; all of them employ See also:expert ability of a high order; and when they approve a title as perfect, the purchaser or lender of money may receive, with the approval, a guaranty against loss in accepting it, which private examiners or counsel cannot give .
Titles are insured also in other countries, but the business has nowhere else attained such importance, nor do the institutions transacting it make full and See also:separate statements of their accounts
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Other See also:minor forms of insurance are against See also:bad debts, bonds and securities in transit, earthquakes, failure of issue, loss on investment, leasehold redemption, non-renewal of licences, loss of or damage to luggage in transit, damage to pictures, loss of profits through fire, imperfect sanitation, See also:birth of twins, &c
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The growth of the business of fire insurance since 1880 or thereabouts has been commensurate with the increase of wealth and of commercial activity in the foremost nations, while the practice of it has also become general in countries in which it was formerly little known, The statistics of the subject have in See also:recent years become far more full and more accessible than formerly; partly because many governments require detailed reports of resources, receipts and expenditures from all companies permitted to establish agencies within their See also:jurisdiction, and periodically publish summaries of the returns; but also largely because the companies seek the widest publicity as their best means of advertising
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It is to be regretted that there is as yet no uniformity of method in these returns; while some of the most important elements of the subject are not sufficiently illustrated for the student in the published statistics
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Many companies of the United Kingdom transact business throughout a great part of the world, and there is no means of determining how much of their receipts or their losses must be referred to Great Britain
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Further, they fail to give classified amounts at risk, so that it is impossible to estimate with any confidence the See also:total sum for which any kind of property, such as dwellings, factories, household goods, stocks of merchandise or wares in transit, is insured
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The returns of the London Fire See also:Brigade, however, which is in part maintained by regular contributions from the fire underwriters at the rate of £35 for each £i,000,000 of risks assumed by them within the See also:metropolitan See also:district, continue to exhibit a regular growth
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The aggregate amount insured in the See also: |