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.