INSURANCE SUPERVISION. While insurance was mostly concerned with marine risks little public regulation was required, as each transaction was completed in the course of a few months, or about a year at most, and the practice of interinsurance between owners required no accumulation of funds. With the advent of fire insurance after the Great London conflagation of 1666 and the beginnings of life insurance a generation later, the conditions of insurance as a business became more complex and the accumulation and security of funds necessary. All insurance is based on average loss as shown by experience, but a policy of fire or life insurance may remain in force for a series of years. Public supervision has con cerned itself, on the one hand, with the terms of the policy contract to secure fairness and equity, and, on the other hand, with the busi ness integrity of the insurer; and the intimate oversight of all forms of insurance is justified by the fact—not at first realized, but now universally admitted—that the insurer acts in a fiduciary capacity toward the multitude of its policyholders.
In recent years, with the application of in surance to a multitude of business relations, covering many hazards of persons and prop erty, it has come to pass that the world's com merce and trade and the welfare of society de pend vitally on insurance as an arch depends on its keystone. A truly tremendous respon sibility, therefore, has come to rest upon super visory officials.
Owing to the local nature of earlrinsurance and the provision for local incorporation when corporate insurance began, State supervision came into being. Before the middle of the 19th century the interests involved called for little more than a yearly financial statement, but by the end of this period an era of rapid growth and vigorous speculation in insurance as a business set in. The increasing interests and erratic tendencies combined to demand closer and more special public inspection. A department of insurance was created in Massa-. chusetts in 1855 and under the direction of Elizur Wright, a genius in insurance science, developed great efficiency and set high stand ards. The same can be said of the New York department, organized in 1860 under the guid ance of William Barnes, Sr. Connecticut and Indiana established insurance departments in 1865, California in 1868 and Missouri in 1869. Gradually all the States have assumed a measure of supervision over the insurance business within their separate borders, in some cases at the hands of one of the regular State officials, but most generally by means of a specially appointed superintendent or com missioner.
Although the insurance business in all lines has long since become national and even inter national in its scope, supervision has remained localized in the States under the influence of a number of decisions of the United States Supreme Court adverse to insurance being an element or instrument of commerce, which precludes Federal oversight. The first case bearing on this point, Paul vs. Virginia, was decided in 1868. Classes of fire, life, accident and health companies or societies doing a local business must necessarily remain under State ry supeision, but there is no longer room to doubt that the corporations doing interstate business could be much more economically and efficiently supervised by the national govern ment. To accomplish this desideratum in the face of the decisions mentioned, an amendment to the national Constitution is necessary.
The possibility of conflicting authority among the 52 insurance departments in the United States has been obviated to a large de gree by the influence of the older States in es tablishing methods and standards and also by the yearly conference of officials which began in 1870 in the National Convention of Insur ance Commissioners. This body has been the means of unifying opinion and of securing the adoption of uniform financial statement blanks and standard policy forms or conditions, as also uniform laws covering certain phases of insurance, such as fraternal orders, casualty reserves and standards of solvency. It is per haps too much to hope for a uniform insur ance code as the final outcome, but some de gree of Federal supervision is a near pos sibility and this will produce an immense sav ing of expense by eliminating the varied and duplicative requirements of the local authori ties on interstate insurance.
The cost of supervision is made a charge upon insurance companies in the form of fees and taxes, which have come so far to exceed expense requirements as to constitute a sub stantial source of State revenue. This charge ultimately falls upon the policyholders and is criticised as a tax on thrift. The contention that insurance of every form is such a social and economic necessity as to deserve encour agement, rather than made a source of revenue, would appear just.