Principles of Insurance

PRINCIPLES OF INSURANCE § 1. Chance, unavoidable and average. § 2. Uneconomic character of gambling. § 3. Borderland of gambling. § 4. Insurance: definition and kinds. § 5. Insurance viewed as a wager. § 0. Insurance as mutual protection. § 7. Conditions of sound insurance. § 8. Farmers' mutual insurance. § 9. Joint-stock insurance of property. § 10. Purpose of life insurance. § 11. Assessment life insurance.

§ 1. Chance, unavoidable and average.

Every action and every movement in life has in it some element of chance. There are what may be called natural chances, arising from the uncertainties of the seasons, or from rainfall, heat, hail, storm, flood, lightning, or land-slides. Such chances must be taken both by the small enterpriser and by the large. In earlier conditions of society natural chance dominated in dustry, and it still remains and must always remain impor tant. There is the chance of unexpected political events, such as war, riot, and legislation on money, tariffs, credit, and business relations. These things are caused, it is true, by the action of men, but it is a collective action out of the control of the individual. There is the chance of human careless ness causing fire, explosions, and wrecks on misplaced switches. There is the chance of physical or mental collapse, as the sudden insanity or the sudden death of one performing responsible duties. There is the chance of sickness that often wrecks the plans and the fortunes of a whole family. There is the chance of economic alterations in methods of production and of transportation, in fashions and demand in this direc tion or for those materials.

Some of these chances are more connected with money 176 lending, others with manufacturing, some with agriculture, others with commerce; but all are present in some degree in every industry. some events are unique in nature and seem unlikely ever to occur again ; others are of a kind occurring so irregularly that no reasonable prediction can be made as to the time and frequency of their occurrences. Still others occur frequently and to many different persons; but no indi vidual can tell when and how they will occur to him. A general average of chances in different lines of business causes some to be called safe, others extra-hazardous. Chance may be favorable as well as unfavorable. Extra-hazardous enter

prises must in general afford a higher average of profit in order to induce men to engage in them. It is folly to take a risk without ascertaining its degree as far as general ex perience enables one to choose. But inasmuch and in so far as the gains and losses fall unequally upon different indi viduals, income depends upon chance.

§ 2. Uneconomic character of gambling. This prevalence of chance sometimes tempts men to say that business is a "gamble." But a distinction in principle must be made be tween gambling and legitimate risk-taking. The chances enumerated above are not sought, but avoided as far as pos sible; yet they must be borne by some one if productive enter prise is to continue, and the burden must somehow be dis tributed throughout the community. Gambling is, however, a kind of risk-taking that has a very different economic and moral quality. Gambling creates the hazard, making the gain or loss of income depend on an event that is not a neces sary part of productive enterprise. Typical gambling is the transfer of wealth on the outcome of events absolutely un predictable, as far as the two gamblers are concerned. Ex amples are the shaking of unloaded dice or the honest deal ing of a pack of cards, and the betting on prices in so-called "bucket-shops" by persons having no connection with the market of real things, and seeking to get something for noth ing as a result of mere chance.

Cheating is not a necessary mark of gambling, although the cruder forms of dishonesty, such as the loading of dice or the collusion of horse-owners or of horse-jockeys to deceive the betting public, are so common that they seem often to be an essential feature. Gamblers recognize fair as opposed to unfair methods. Fair gambling is a kind of minor morality within the immoral field of gambling, like the honor found among thieves. The chance-taking in gambling, has no use ful purpose or result outside itself. Betting and gambling do not produce wealth, but merely shift the ownership of ex isting wealth. The gamblers constitute themselves a little fic titious economic circle, and they transfer gains and losses on the turn of events that have no practical objective result within their circle except to determine the direction of the transfer.