Insurance, Reputation, and Kristallnacht
By Bryan Caplan
In 1938, Jewish businesses and synagogues through Germany were burned and looted in a massive pogrom. Historians call the incident Kristallnacht. The Nazis naturally blamed the Jews. So the Nazis were horrified when they realized that Aryan-owned insurance companies were liable for the damages!
The obvious solution for the Nazis was to let the insurance companies weasel out of their contracts. But contrary to what critics of private health insurance would have you think, insurance companies aggressively lobbied against this solution. Why? Because they greatly valued their reputation. As the Holocaust History Project explains:
Insurance was an international business and insurance companies were
worried about their loss of reputation if they did not keep their
contracts to indemnify the losses. In a meeting after Kristallnacht,
Göring compromised with the nervous insurance industry by allowing them
to pay out the damages, even to Jews. To offset those losses, Göring
then imposed a huge fine on the Jewish communities in order to offset
the losses of the insurance companies. Thus, the Jews themselves
ended up paying for the damages in an indirect way.
“The Nazis made me do it.” What better excuse is there for an insurance company to renege? But the German insurers refused to take the easy way out – even though most of them were probably anti-Semites themselves. Here‘s the key passage from official Nazi documents (Hilgard was a leading figure in German insurance industry; as far as I can tell, all of the other people in the transcript are Nazi officials):
Hilgard: …We’d like to make it our point, Mr.
General Field Marshall, that we shall not be hindered in fulfilling the
obligations for which our contracts call.
Goering: But I have to. That is important for me.
Hilgard: If I may give reasons for this request, I’d like to say
that it simply has to do with the fact that we carry out, to a large
extent, quite a number of international transactions. We have a very
good international basis for our business transactions, and in the
interest of the equilibrium of the Foreign exchange in Germany, we have
to make sure that the confidence in the German insurance shall not be
ruined. If we now refuse to honor clearcut obligations, imposed upon us
through lawful contract, it would be a black spot on the shield of
honor of the German insurance.
Goering: It wouldn’t the minute I issue a decree-a law sanctioned by the State.
Hilgard: I was leading up to that.
Heydrich: The insurance may be granted, but as soon as it is to be paid, it’ll be confiscated. That way we’ll have saved face.
Hilgard: I am inclined to agree with what General Heydrich has just
said. First of all, use the mechanism of the insurance company to check
on the damage, to regulate it and even pay, but give the insurance
company the chance to…
Goering: One moment! You’ll have to pay in any case because it is
the Germans who suffered the damage. But there’ll be a lawful order
forbidding you to make any direct payments to the Jews. You shall also
have to make payment for the damage the Jews have suffered, but not to
the Jews, but to the Minister of Finance.
What he does with the money is his business.
Schmer: Your Excellency, I should like to make a proposal. A certain
rate should be fixed, say 15% or maybe a little higher, of all the
registered wealth, I understand one billion is to be confiscated so
that all Jews shall pay equally, and from the money raised this way,
the insurance companies shall be refunded.
Goering: No. I don’t even dream of refunding the insurance companies
the money. The companies are liable. No, the money belongs to the
State. That’s quite clear. That would indeed be a present for the
insurance companies… You’ll fulfill
your obligations, you may count on that.
The German insurance companies hardly come out looking like heroes. As long as they preserved their reputation, they couldn’t care less about the fate of their Jewish customers. But this example still makes my point well: If even insurers in Nazi Germany insisted on living up to the letter of their Kristallnacht obligations, insurance companies’ reputational motive must be strong indeed.