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. (Hilgard: Aha!) 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.