C. RELATION OF TIIE GOVERNMENT TO INSUR ANCE. The economic and social value of insur ance can hardly be overestimated. The applica tion of the insurance principles in the produc tion of wealth reduces materially the cost of commodities and services; the proceeds of life insurance policies keep many families from want or charity; while the peace of mind which in surance creates is certainly of great value. It is therefore of great importance that the system should be widely extended, and that as ninny people as possible should enjoy its advantages. It is pertinent to inquire whether the manage ment of insurance by private companies is as efficient as it ought to be; whether there are any a priori reasons for expecting better results from governmental management : and what has been the experience of such governmental insurance offices as have been already established.
The first requisite of a satisfactory system of insurance is security. In this respect no criti cism can be brought against the older companies in the established lines of insurance. It must he admitted. however, that while many companies have of their own initiative adopted such methods as are ealeulated to secure their stability, many others have been reckless or even dishonest in their management. The total amount of money collected in the form of insurance premiums by companies which have failed to make the agreed returns to the insured is very large. The gen eral high level of security in the insurance busi ness in the United States is due to no small ex tent to the stringent requirements of the insur ance departments in the various States.
The second requisite of a satisfactory system of insurance is cheapness, premium rates as low as is consistent with safety. In this respect the results of private underwriting leave much to be desired. As already pointed out. unrestricted competition would he both an imperfeet and an extremely costly method of regulating rates. As a matter of fact. in the United States. competi tion has comparatively little influence in fixing rates or compelling economies of management. In all lines of insurance the rates are fixed by agrt•m•nts, and the attempts of the legislatures 4.1 various States to reinstate competition by leg lint accomplish nothing. It may be trite that in ninny cases the rate, are tome too high cover and expenses as insurance companies are at present managed, but in many losses, and in practically all eases expenses, are unnecessarily high. It is one of the
advantages of unrestricted competition that it forces the adoption of economical methods. III the insurance business, however, strait competition as survives does not result in cheaper methods and a lower cost of instirall(1.. but rather in the expenditure of larger sums in the attempt to secure new business, and in the presentation of More attractive but more expensive methods of settling policies. Aloreover, tiltogether aside from the question of cost within a single (4411 p:illy, large numbers of companies, and the con sequent multiplication of managers, agents. and material equipment. greatly increase the cost of insurance. There is no other line of eeonotnie activity in which the gain from production on a large scale is ,0 great as in the insurance business.
With respeet to security, governmental instil. mice clearly has the advantage. Nothing could be more secure than the insurance policy guar anteed by the Government. With respect to cheapness the case is not so simple. though the advantage would probably be with the Govern ment Olive. The possible saving itt the actual management of the business would he enormous, and the large seal'. on which governmental instil- anee could be earrie41 on would greatly reduce its east. It would he unnecessary for the Gov ernment to accumulate large reserves when the number of the insured had become so great that the amount of loss was praetieally uniform from tear to year The only reason why there can be any uncertainty as to the comparative econ omy of governmental insurance and private in surance is that the Government is generally a wasteful manager: but in this partieular ease the Ippo•tlinisies for eeoneinty are so numerous that it seems hardly doubtful that the net cost of insurance would be lower if the business were in the hands of the Government. The diffi culties in the Way Of governmental insurance are of a political nature. and that they are very serious cannot be questioned. The business would present unlimited opportunities for the mani festation of favoritism for the purpose of fur thering personal and political ambition. So that while an ideally managed governmental insurance would be far preferable to the present system of private underwriting. the political evils which would result might he so great that they would overbalance the economic gain.