The First Half of the Twentieth Century
The
First Half of the Twentieth Century
It
is mainly during this last century that insurance became an institutionalized
activity.
The evolution of insurance business has brought it
conventions
between individuals to a major national concern in all the countries.
One
of the most important aspect of the first half of this century has been in all
countries
the increasing involvement of governments. Not only governments
introduced
intensive regulation but also became insurers when the protection of
the
public interest became a matter of social concern.
Government
intervention as a regulator
In
the United States of America, the first two decades of the century opened
with
a series of major events in the era of insurance regulation. The major
reform
of the life insurance industry began as an intra-company dispute
involving
Equitable Life. The Armstrong Investigation Committee conducted in
New
York found insurance company abuses in all facets of the life insurance
business
and the 1906 report further raised the steps for life insurance
regulation.
The Armstrong Committee certainly contributed to New York's
reputation
for strict regulation of insurance (Weisbart, 1975).
In
the fire insurance business, investigations of the insurance companies
were
conducted in some ten states after the San Francisco fire of 1906. In New
York,
the Merritt Committee established in 1910 concluded that collaborative
ratemaking
was needed because each individual finn lacked sufficient data to set
fire
insurance rates. It recommended the establishment of rating bureaus to
make
rates for fire insurance companies.
At
the same time in Europe, politicians were taking the same steps towards
more
regulation of the activities of the insurance companies. In Switzerland,
Numa
Droz supported the law establishing the principle of insurance
sUlVeillance
in 1885. But it was not until the beginning of the century that
insurance
boards were established in Germany (in 1901) and in France (in
1905).
The British insurance tradition had always been one of self-regulation
and
remained prevalent until the Second World War.
The
power to license insurance companies has always been the first act of
regulation
in all countries. In France, the licensing agreement was promulgated
by
the law of 15 February 1917. The first reason for that law was in fact to
protect
military secrets like the location of factories which could have been
revealed
to the enemy by means of insurance (Picard and Besson, 1977, p. 176).
The
idea of a solvency regulation in France originated only in the insurance law
of
1938 which prescribed the methods by which reserves could be calculated.
The
impact of the Napoleonic Wars and of the First World War and its
international
ramification was to stimulate the process of nationalistic
restrictions
of insurance activity and to stimulate the creation of strong
domestic
insurance markets not only in Europe but also in the United States.
Government
intervention as an insurance carrier
The
Code of Hammurabi embodied elements of what has become today social
insurance.
It stated that "if the brigand has not been caught, the man who has
been
despoiled shall recount before God what he has lost, and the city and
Governor
in whose land and district the brigandage took place shall render back
to
him whatsoever of this that was lost".6
As
early as the 1850s, the Government of Prussia had in fact organized a
system
of benefit funds providing against sickness and death (the Prussian
Industrial
Code of 1845). Under the leadership of the Reich Chancellor
Bismarck
a first Accident Insurance Bill was proposed in 1881.7 A Sickness
Insurance
Bill was promulgated in June 1883 and the first compulsory Accident
Insurance
Law was that of July 1884 relating to mines, shipbuilding yards and
factories.
It became law as the Old Age and Invalidity Insurance Act on June
1889.
At
the same time a series of disastrous mine accidents in Great Britain
resulted
in the adoption of the Coal Mines Act of 1872 on general safety rules.
The
increasing number of occupational injuries despite the requirements of the
safety
and health regulations resulted in worker's compensation laws to
indemnify
injured workers in Germany (1885) and in Great Britain (1897).
27
Government
involvement in social insurance activities is probably more
significant
in its impact on the insurance business than any other event during
the
first part of this century. Although initially designed to provide only a basic
minimum
economic security, the concept of Social Security quickly expended
into
a relatively comprehensive system.
Despite
the adoption of social insurance legislation in all European
countries
during the end of the nineteenth century and the first part of this
century,
the United States waited until the Great Depression of the 30's before
taking
action. The Social Security Act of 1935 provided public assistance,
unemployment
insurance, and old age insurance (Pfeffer and Klock, 1974, p.
430).
