208 INSURANCE 



untimely death, of fire, shipwreck, burglary, windstorms, floods, and 

 many other contingencies outside of the control of man. The uncer- 

 tainty of human life is modified by social progress, in particular by 

 the advances in medicine and related sciences, but there must always 

 remain the risk of premature death, which insurance alone can equal- 

 ize through the principle of association. In the classic language of 

 the first Select Committee on Friendly Societies, in 1825, this means 

 that " wherever there is a contingency, the cheapest way of provid- 

 ing against it is by uniting with others; so that each man may sub- 

 ject himself to a small deprivation in order that no man may be 

 subjected to a great loss. He upon whom the contingency falls does 

 not get his money back again, nor does he get for it any visible or 

 tangible benefit, but he obtains security against ruin, and consequent 

 peace of mind." 



The theory of risk and insurance has been elaborated and set forth 

 by Mr. Allan H. Willett in a most instructive dissertation published 

 by Columbia University in 1901. He holds, and very properly so, 

 that as a general rule uncertainty exercises a repellent influence in 

 human life and that the existence of risk in an approximate static 

 state causes an economic loss, while, on the other hand, the assump- 

 tion of risk is a source of gain to society. From this point of view 

 the business of insurance does not differ essentially from general 

 commercial enterprises. Risk is assumed in mining and agriculture 

 in much the same manner as risk is assumed in the business of in- 

 surance, but in life insurance, for illustration, the assumption of a 

 risk and the equivalent premium payments required are determined 

 by the theory of probability and the established laws of human 

 mortality and observed experience. In general commercial enter- 

 prise the risk assumed is, as a rule, created, while in insurance the 

 risk assumed is preexisting. This marks the broad division between 

 gambling and insurance. Insurance is not " in the nature of a bet," 

 for in insurance an effort is made to eliminate an existing risk by its 

 assumption on the part of the many, while in gambling a non-exist- 

 ing risk is created with resulting uncertainty and needless loss to 

 society. 



The gain resulting to society is the reduction of the uncertainty 

 for the group as a whole, or the substitution of certain loss for un- 

 certain loss. By this process of diminishing the degree of uncer- 

 tainty, the cost of the risk to society is very largely and considerably 

 reduced, if not entirely eliminated, and thus it follows in the words 

 of Willett that " the risk an insurance company carries is far less 

 than the sum of the risks of the insured, and that as the size of the 

 company increases, the disproportion becomes greater ; " or, to use 

 a definition of Roscher: "The aggregate danger is less than the sum 

 of the individual dangers, for the risk of it is more certain, and uncer- 



