Abstract
This chapter summarizes the track record of mutual insurance from 1550 to the present. We ask: How did micro-insurance work? Why did it work? Under what conditions can it still work today? In answering these questions we consider issues of continuity and discontinuity over the centuries, determinants and preconditions of mutual insurance, past and present, as well as the consequences for those covered and for society at large. We argue that it is wasteful to allow the tradition of mutualism to be lost without adequate recognition of its past importance (flaws included), careful consideration of its present performance (even if limited), and an imaginative assessment of what we might make of it today, and in the future.
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Notes
- 1.
One of Timmer’s theses, adduced in his Ph.D. (Timmer, 1913), was that the ‘Dutch funds were an extension of the guild system’.
- 2.
Lucassen (1991, p. 32).
- 3.
- 4.
- 5.
Altena (1996) does note that guilds for public-sector work continued to exist and that both they and the former guilds continued to make disbursements, but he believes these allowances were relatively insignificant. He sees no direct link between guild funds and local trade union funds. Furthermore, he stresses the point that the new, often national, trade unions of the second half of the nineteenth century were different in their working-class membership from the local artisan unions of the first half of the century, a point incidentally also stressed by Lucassen (1991).
- 6.
Bos (1998a, pp. 107–9 (shipwrights’ guild), pp. 131–3 (peat porters’ guild)).
- 7.
The Leydsche Gerechtigheyd, a general fund based in Leiden, was founded in 1719. It was converted into a burial fund in the nineteenth century and continued to exist until at least 1890. See Bos (1998a, p. 238). Van Genabeek (1998b, p. 323) gives examples of former guild mutuals that became mutuals open to all. Insurance funds operated by several former guilds in Nijmegen with a sizeable capital continued to provide allowances to former members and their descendants until 1940, and even later. One fund continued until 1972, presumably for Nijmegen’s poor generally. See Janssen et al. (2015).
- 8.
Calculated on the basis of Sandra Bos’s Bussen database, discussed in Chap. 2. One can assume that for 1811, this Bussen database was more or less comprehensive. See Chap. 2 as well as van Genabeek (1998b, p. 323, esp. note 10). In addition, in the case of a very few funds, we know they were converted into or absorbed by another insurer or savings bank.
- 9.
Journeymen’s boxes regularly copied one another’s regulations. For example, the regulations of Utrecht’s journeymen bricklayers in 1741 were copied from those of the journeymen carpenters drawn up in 1730. See Bos (1998a, p. 176).
- 10.
Based on van Genabeek (1998b, p. 318).
- 11.
- 12.
This might hold true for countries other than the Netherlands as well. Gorsky (1998a, pp. 306–7) stresses the similarities between the first British friendly societies and guilds with regard to governance, social control, sociability, funeral, and other rituals. Cordery (2003, p. 17) notes that British friendly societies copied guild models (although some also invented guild origins). The oldest mutual benefit societies in Britain appear to have been founded by Huguenot refugees from France, who will have been familiar with the guild tradition of mutual help. See Cordery (2003, pp. 20–1) and Beveridge (2015 [1948], p. 23).
- 13.
Kappers and Luijt (1999). I owe this reference to Jan Lucassen.
- 14.
- 15.
Van Genabeek (1999, pp. 309–10). He also believed that there were hardly any friendly societies that became trade union organizations. New research discussed in the following makes clear that there were.
- 16.
See Hoekman and Houkes (2015, pp. 47–9).
- 17.
As was the case with British friendly societies too. See Cordery (2003, p. 75).
- 18.
Weber (1968 [1921]).
- 19.
In Dutch research, van Braam’s criteria (1977) have often been used. See Raadschelders (1990), for example. These criteria comprise a dozen characteristics of the persons involved and eight characteristics of their work. There is no need to adopt van Braam’s criteria lock, stock, and barrel. They are not an international standard for measuring bureaucratization—indeed, there is no such standard—and even in the Netherlands, other researchers have used similar, though not identical, criteria. For simplicity’s sake, I have tried to stay close to this scheme, while applying it to mutuals.
- 20.
It is true, however, that some of the costs of guild micro-insurance were paid by taxpayers in general, raising the true costs above the observable costs.
- 21.
Hansmann (1996, pp. 27–9, 33 [quote]) points out that even in mutuals with a generally lower incidence of malingering than in for-profit insurance, combating moral hazards still comes at a cost to its members: ‘If the problem is that patrons, having information inaccessible to the firm’s management, can behave opportunistically toward the firm, then this problem is not completely solved by having the patrons own the firm [in this case, having members own the insurance box]. There remains an incentive for each patron to act opportunistically even as an owner, since he will bear only a small fraction of the costs of his behaviour, while the rest falls on the other patron-owners’. Hechter (1987, p. 123) rightly surmised that having a social club first and an insurance function later will lower these costs.
- 22.
This statement leaves undiscussed whether mutuals were more or less bureaucratic than other institutions at the time, such as charities or civic guards, although there is no evidence that they lagged behind.
- 23.
- 24.
De Tocqueville (1961).
- 25.
- 26.
Hansmann (1996, p. 22) sees continuity as a hallmark of superiority. In his discussion of why some firms are for profit, others mutual, philanthropic or otherwise, he states that ‘The least-cost assignment of ownership is […] that which minimizes the sum of all the costs of a firm’s transactions. That is, it minimizes the sum of (1) the costs of market contracting for those classes of patrons that are not owners and (2) the costs of ownership for the class of patrons who own the firm’. From this, he deduces that in the absence of subsidies and distorting laws and regulations, survivorship rates can be used as indictors of least-cost assignment because ‘over the long run, cost-minimizing forms of organization will come to dominate most industries’.
- 27.
- 28.
Kropotkin (1902, pp. 194, 237, 251).
- 29.
For life insurers in the United States, Hansmann (1996, p. 268) sees the mutual form as being advantageous in certain respects for profit companies. ‘Even if the company’s policyholders were financially quite sophisticated and in a position to remain closely informed about the company’s affairs, it would be extremely difficult for them to know what level of reserves a company should maintain in all possible situations, much less to write an effectively enforceable insurance contract that would ensure that the company maintained such reserves. The amount of reserves required, after all, varies appreciably with the age, health, and occupation profile of the company’s policyholders, with the type of assets in which the company has invested its funds, and with the best current wisdom about the future performance of the economy. Writing a contingent contract that would deal effectively with such variables over a period of decades would be a heroic task.’ He goes on to say (pp. 269–70) that ‘With the policyholders as owners, there is little incentive for the company to behave opportunistically in setting the level or riskiness of its reserves. A mutual company can simply establish a nominal premium for its policies that is high enough to provide reserves adequate for the most pessimistic forecasts of mortality, rate of return on investments, and inflation; then, if and when, events turn out better than a worst-case forecast, the excess reserves can be liquidated and returned to the policyholders as dividends. The difficulty of market contracting between companies and policyholders is eliminated by eliminating the market and replacing it with an ownership relation.’ And on pp. 270–1: ‘With a mutual company, a policyholder can purchase pure life insurance without having to bear the costs of these additional risks. Since the policyholder is on both sides of the transaction, there is no gamble. If the inflation rate, the real rate of return on investments, or the mortality rate turn out to be different than forecast, then what the member of a mutual insurance company loses on his policy he gains as owner of the company, and vice versa. A mutual insurance company can regularly adjust its policyholder dividends, which can be paid either in cash or in the form of further insurance, to ensure that the company’s policyholders always have in force the appropriate amount of insurance and pay only the actual cost of providing that insurance.’
- 30.
A point stressed by Ostrom (1990), who, on pp. 88–102, lists design principles for long-enduring common pool resource institutions, which we will compare with our empirical findings.
- 31.
See the references to Arrow, Akerlof, and others in the introduction to the present book. See also Ostrom rule no. 4 on monitoring: those who actively monitor common pool resource conditions and appropriation behaviour are accountable to the appropriators or are the appropriators. See esp. pp. 93–4: ‘[…] even in repeated settings where reputation is important and where individuals share the norm of keeping agreements, reputation and shared norms are insufficient by themselves to produce stable cooperative behavior over the long run. If they had been sufficient, appropriators could have avoided investing resources in monitoring and sanctioning activities. In all of the long-enduring cases, however, active investments in monitoring and sanctioning activities are quite apparent’.
- 32.
- 33.
This goes beyond Ostrom’s (1990, p. 101) principle 7 on the minimal recognition of rights to organize, including the rights of appropriators to devise their own institutions and those not being challenged by external authorities. See Beveridge (2015 [1948], pp. 71–2), ‘The most important things which by law must be provided for by the rules [of a registered friendly society] are the following: (a) the conditions of membership; (b) the conditions of benefit; (c) the manner of governance of the society; (d) the mode of investment of the funds; (e) the keeping of accounts and getting them audited once a year at least; (f) the manner in which disputes between the society and its members shall be settled; (g) the rights of every person having an interest in the funds to inspect the books of the society.’
- 34.
All Dutch micro-insurers, save the bread funds, have provisions on who can become a member—or on the termination of membership in the event subsequent information comes to light that, had it been known in the first instance, would have prevented the applicant from becoming a member—and rules to limit adverse selection, usually relating to age or high-risk behaviour. The bread funds do not have such rules, with the exception of not allowing pregnant women to join, but they do sometimes veto applicants where they are seemingly unfit.
- 35.
Dutch guild funds and most of the first friendly societies were local only. Upscaling into organizations covering parts of the country may lead to economies of scale, but it might also increase monitoring problems. Whether a layered structure with a regional or national office and local branches works effectively will depend on whether the existing organizational and information technology is able to minimize monitoring problems. There can thus be a critical phase when these technologies do not keep up with upscaling, as was the case with some friendly societies at the end of the nineteenth century and with trade unions after 1945. Perhaps the big-brother surveillance capabilities of today’s social media might permit a confederation of local micro-insurers. The English-speaking world has harboured such large federative mutuals, so-called affiliated orders. See, for example, Beveridge (2015 [1948], p. 37 et passim). See also Ostrom’s (1990, pp. 101–2) design principle for common pool resources that are part of larger systems, nested organizations. An affiliated order might, if the balances of its small local branches can be consolidated without loss of local affinity, offer a solution to the problem of random fluctuations in small insurance groups.
- 36.
A point also raised by Harris (2015).
- 37.
This is equivalent to Ostrom’s (1990, pp. 91–4) requirements for common pool management 1, 2, and 3: (1) clearly defined boundaries: individuals or households who have rights to withdraw resource units from the CPR [common pool resource] must be clearly defined, as must the boundaries of the CPR itself; (2) congruence between appropriation and provision rules and local conditions; and (3) self-government: most individuals affected by the operational rules can participate in modifying the operational rules.
- 38.
Cf. Beveridge (2015 [1948], p. 296), who wrote in 1947: ‘Anything that can be done to encourage the friendly societies to be undefeated by their present troubles is well worth while. It would be a pity if the whole field of security against misfortune, once the domain of voluntary Mutual Aid, became divided between the State and private business conducted for gain’. He also noted that ‘The field is open to experiment and success or failure; secession is the midwife of invention. The new institution may fail or may remain limited. It may grow according to the life that is in it, and growing may change the world.’ Ibid., pp. 59–60.
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van Leeuwen, M.H.D. (2016). Principles and Practices of Mutual Insurance, 1550–2015. In: Mutual Insurance 1550-2015. Palgrave Studies in the History of Finance. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-53110-0_6
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