Abstract: Insurance as a Successful Adaption Strategy against Natural Hazards: The Development of German Crop Insurance, 1800-1914

Frank Oberholzner


The paper deals with a new business field, which was established as a consequence of natural hazards. It will be shown that German crop insurance was both a successful adaption strategy against natural hazards (and therefore an example for the production of human security via insurances) and a part of the institutional revolution during the nineteenth century. Methodically, the paper will show that crop insurance is an innovation from a Schumpeterian view. In detail, we will use a four-phase model of service innovation in order to analyze different primary and secondary product innovations as well as process innovations during the nineteenth century. In our opinion, all these innovations induce a new chapter in the history of German crop insurance. Analyzing the concrete branch development since 1800, different economic concepts like the principal-agent or transaction-cost theory will be used in order to show typical aspects of insurance market failure like an inadequate risk diversification or inexperience with this new kind of insurance. Furthermore, we are able to show that apart from various meteorological conditions, particular economic problems—such as the lack of capital, the absence of statistical records, and also the absence of trust in this new institution—were responsible for the divergent development of crop insurance in the northern and southern parts of Germany. If and when these difficulties could be overcome will be highlighted in the paper as well.