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 documents, 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 assistance 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 classes 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 massive construction of houses, and of good, that is, as a rule, of costly fire-extinguishing institutions.[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 unassailable 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 institution 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 class of risks were to be treated as one whole, the insuring principle itself would suffer.[237d-12] Where the nation or municipality 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 institution 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 institutions to keep their promises to the letter is best assured 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 municipality. 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]
[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 Brämer in III, Ergänzungshefte der Preuss. Statist. Ztschr. und Mitth., 1871, No. 1.
[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, Glückseligkeit, etc., eines Staats. 1860, 81. Also Krünitz, Oekonom. Encyclopædie, 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.)
[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 Württemberg 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 Phœnix 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. Ergänzhefte 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.
[237d-4] Compare Brügemann, Die Mobiliar V. in Preussen nach dem G. von 1837.
[237d-5] Oberländer, loc. cit. 108, calls insurance without classification of risks, a "mutual benevolent institution;" and one rigidly classified according to the probable period of burning, "an institution for the making of advances" (Vorschuss-Anstalt.) In Baden, even in 1737, there was no difference made between a massive 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 class. (Rau, Lehrbuch, II, 1, § 26, a.) In Württemberg, 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, massive buildings with hard roofs paid 1,003,000 thalers and received 612,000 thalers; the not massive 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.
[237d-6] While in most English insurance companies, there are only three classes: common, hazardous, and doubly hazardous, in Rhenish[TN 61] Prussian insurance companies, there are seven, according to the style of building, and in each class two subdivisions, according to the location.