Insurance in Halakha (1)
The use of insurance to limit risk is a common feature of the modern economy. Hundreds of years ago, the use of insurance was limited to important traders who faced tremendous risks; today, the average middle-class family carries numerous insurance policies. These probably include: life insurance on the main provider; collision, theft, and liability insurance on the family car; disaster (fire, flood, earthquake) and liability insurance on the house (including theft insurance on valuables); and health insurance. Nowadays, the family insurance agent is almost as familiar a figure as the neighborhood grocer! With this in mind, it behooves us to examine the halakhic ramifications of this important part of our economic landscape.
A. Halakhic Issues in Insurance: An Overview
Insurance is a financial instrument, meaning that only money changes hands between the two sides of the transaction, as opposed to goods or services. As such, it is subject to the halakhic questions common to all financial instruments: questions of forbidden interest, validity of obligations, inheritance status, and so on.
In addition, the fact that an insurance policy refers to a particular object (or person) who is being insured raises unique questions about the exact relation between the policy and the object. We will formulate these questions in terms of the following fundamental inquiry: Is the insurance an ATTRIBUTE of the object, turning an ordinary object into a completely new thing called an "insured object," or is the insurance only a kind of "SIDE BET" made on the status of the object?
The earliest reference in Jewish sources to insurance is a reciprocal insurance agreement mentioned in the Tosefta. The Tosefta discusses an agreement among a group of porters to repay any member of the group for an accident to his beast, or among a group of shipowners to repay the loss of a ship. The payment is made only in kind (merchandise), not in money. Benefits are paid only if there was no culpable negligence.
A kind of insurance discussed innumerable times in the Talmud is "repossession insurance" - guaranteeing the sale of a field against seizure by the seller's creditors. A clause promising the buyer recompense if the field is seized by the seller's creditor was so common that according to the accepted opinion, it is an implicit condition in any land sale.
Such a guarantee resembles a warranty much more so than it resembles an insurance policy. The importance of a warranty is only partially in the insurance it provides; it is also partially in the incentive it gives the seller to provide a quality product in the first place. A warranty thus serves as a signal of quality; even a buyer who will not be able to take advantage of a warranty will seek one. Likewise, a buyer of a field may demand a guarantee from the seller mainly to make sure he is not being taken advantage of.
This may limit the applicability of halakhot of such backing to the question of insurance in general. For instance, there is an asmakhta problem for Levi to guarantee Reuven's field to buyer Shimon (from seizure by Reuven's creditor Yehuda), but that does not imply that the same problem exists for other insurance deals.
The business of maritime insurance in the time of the Rishonim and early Acharonim, which was widely practiced by Jews from Mediterranean countries (France, Turkey, Spain, North Africa) spawned a huge responsum literature. These responsa dealt preponderantly, but by no means exclusively, with questions of forbidden interest, since the insurance business was intimately allied with the credit business - partially for the exact purpose of evading interest restrictions, including those of the non-Jewish authorities. As pointed out in an article by Yaakov Bazak, this literature is a most important contribution to the history of insurance. These responsa provide voluminous and detailed information about the early insurance business, much of which has not yet made its way into the standard works.
With the growth in modern times of insurance covering every kind of business risk, the responsa literature has penetrated every corner of the insurance business. This article is not meant to be comprehensive, but rather to present the main issues which relate to insurance as a financial instrument.
II. Insurance as a Financial Instrument
Interest questions in insurance arise both from the insurance deal per se - since the repayment is typically greater than the premiums - and especially from the amalgamation of insurance and credit deals. A fairly representative discussion of the interest problems of maritime insurance is found in the Beit Yosef. Here is the quote from the Beit Yosef:
The Ribash writes: "It seems clearly forbidden to lend twenty dinars to a Jew on the responsibility of a sea-faring ship in return for receiving twenty-four dinars on its return, since this is a loan and he is specifying a particular amount as interest. And even though the lender accepts the risk for the entire journey, this does not vitiate its status as a loan, according to the rule in eizehu neshekh, for the case when 'the payment and repayment are both in money, and the owner does not receive the original object in return as he would in renting out a shovel.'"
But the custom of giving twenty pounds to someone who will insure the hundred-pound value of the ship is completely different, because there is no loan but rather a kind of sale in which he accepts the risk of loss in return for this sum which he is given, and even if the twenty pounds is paid in advance, there is no problem.
The explanation of the ruling is as follows: A typical interest rate is really composed of two components: the cost of time, plus a risk premium. Government bonds are a basically risk-free investment, and the interest rate on them reflects only the cost of time. Any other interest-bearing instrument bears a higher rate of interest, which recompenses the investor for the risk of default.
Only the first aspect of interest is forbidden by the halakha. Thus exactly are the words of the gemara "The axiom of forbidden interest is that all agar natar lei - "paying for waiting" - is forbidden." Compensation for risk, on the other hand, is perfectly acceptable, and in fact forms the basis for permitting interest-like transactions via a "business partnership" known as an iska, one of whose conditions is that the lender must be "close to loss." The payments from borrower to lender in the case of a profit can then be viewed as a fair reward for the risk of loss undertaken.
This explains the decision of the Beit Yosef. Paying the ship-owner the value of his cargo in return for a share of the profits if the ship returns safely is a transaction having both components. First, there is a credit loan enabling the shipmaster to finance his journey. Furthermore, the amount of money received by the shipowner is lower than the anticipated value of the cargo to compensate the lender for the risk of loss; the deduction is comparable to a payment from shipmaster to lender to induce the latter to accept this risk - in other words, an insurance premium. The first component is a classic case of agar natar lei, and its presence in the deal described by the Ribash makes the whole deal forbidden. But the second component has no credit aspect at all and is therefore unproblematic.
The Kaftor Va-ferach, relying on the book Sefer Ha-ezer of Rav Meir bar Yitzchak of Provence (also known as Rabbenu Ha-ezri), permits even the first type of deal, which was forbidden by the Ribash and the Beit Yosef (and most other posekim). They viewed the entire addition to the amount of the original loan as an insurance premium.
This view seems very cogent. Certainly the Beit Yosef would not have objected to an interest-free loan to which was added to the insurance deal which he permits. Yet the end result would be identical to the deal which he forbade: the original loan is less than the amount repaid by the amount of the insurance premium, but the money is paid back only if the ship arrives safely, since otherwise the loan repayment is offset by the insurance benefits.
A similar situation exists by an iska partnership. The iska is considered a business investment in combination with an interest-free loan. Receiving profits on an iska requires explicitly attributing all profits to the investment, as opposed to loan, aspect. Conceivably, if the insurance agreement mentioned were explicitly worded as an interest-free loan in conjunction with an insurance deal, the Ribash would have permitted it; though it is just as likely that such wording would not have helped because of the prevalence of using such deals as a credit device. The stringent opinion of the Beit Yosef and most authorities was probably strongly influenced by the fact that such insurance deals were widely employed as a subterfuge to avoid interest restrictions, including usury laws of the non-Jewish authorities.
B. Binding Obligation
The Shulchan Arukh specifies certain specific ways in which it is possible to give validity to a transaction, whether an acquisition (kinyan) or merely an obligation (hitchayvut). The ways in which deals are closed in regular commerce seldom conform to the conventions of the Shulchan Arukh, but the halakha allows for this via the rule of "sitomta" which recognizes any custom accepted among merchants (minhag ha-socharim) as a valid way of effecting an acquisition.
However, there is an additional problem that some acquisitions or obligations are in and of themselves problematic according to the halakha, without connection to the way in which they are undertaken. One limitation which is particularly relevant to insurance is that of asmakhta. Any obligation which is conditional creates a question if the promisor really intended to carry out his promise, or if he only promised under the assumption or hope that the compelling condition would never come to pass. This question arises regarding the insurance contract also, because of its conditional nature. The question is raised in the Pitchei Teshuva, who quotes at length a responsum of the Beit Efraim.
Quite a few authorities hold that "sitomta" gives validity to an asmakhta just as it gives validity to conveyances which are foreign to halakha. According to this view there is certainly no problem, since there is no question that it is customary to view insurance agreements as binding. The question arises according to those authorities who do not view sitomta as a solution to asmakhta problems, or as an academic question as to whether the agreement is binding according to din Torah per se.
One obvious approach to the problem is that of Rabbenu Tam. Tosafot  raises the question of gambling winnings. Obviously every gambler puts money on the table only in the expectation and hope that he will win; this seems to be a case of asmakhta. However, Rabbenu Tam concludes that the gambler enters the transaction with full willingness: he is willing to sustain the risk of loss in order to obtain a chance to win.
In our case, the situation is even better. First of all, the insurer receives a definite return - the premium - and not just a potential one; second of all, the insurer makes identical deals with thousands of clients, and so he can be nearly certain the odds are on his side. This should be sufficient to create a presumption that he enters into his obligation to pay insurance benefits with full acquiescence.
However, the Rema  points out that this opinion of Rabbenu Tam is not unanimous, which led the posekim to consider other reasons to validate a gambler's acquisition. Likewise, we are interested in other ways of giving force to the insurance contract.
The Beit Efraim gives a long list of reason why the agreement is not an asmakhta. The main one is the similarity of the insurer to a loan guarantor. Backing a loan is seemingly a prime candidate for asmakhta: obviously no one would ever cosign a loan if he truly believed that the lender would default. However, the gemara recognizes the cosigner's obligation on the basis that the lender relies on him; this builds his reputation as a reliable dealer.
Another reason mentioned by the Beit Efraim is that the obligation is dependent on events completely out of the control of the parties. According to the Ramban and many other Rishonim, there is a problem of asmakhta only if the promising party is relying on himself, or on another person who he has reason to trust will not let him down.
A further reason to enforce the agreement exists when the form of the insurance contract was to give a note for the insured amount to the insured in advance, with a condition that the latter could collect on it only if a loss occurred. Such agreements do not seem to exist nowadays.
As pointed out by the Beit Efraim, this question was dealt with by the Ribash, who concluded there is no asmakhta problem. In fact, a similar problem was already discussed by the Rosh. The Rosh was asked about a slaughterer who slaughtered an animal on the basis of a promise from a friend to pay for the animal even if it turned out to be treif. The animal was in fact ruled unfit, and the insurer wanted to back out on the basis of asmakhta. The Rosh ruled that the agreement was invalid if there was no kinyan, but there is no problem of asmakhta.
If this "reputation" criteria is only meant to demonstrate that there is some benefit to the cosigner, then the question should not arise in the case of insurance, or in the case where one is paid to cosign a loan. It seems that there is an additional consideration; namely, that the reputation of being relied upon is somehow commensurate with the sum of the reliance, so we do not view this as a case of accepting a large potential obligation in return for a relatively small sum: the "payment" (of increase in one's reputation) is proportional to the obligation.
 This article is dedicated in honor of the sixtieth birthday of my father-in-law, Avraham Yitzchak Dudovitz, a devoted insurance agent for many decades.
 Tosefta Bava Metzia 11:12. The Tosefta is discussed in the gemara, Bava Kama 116.
 Choshen Mishpat 39a.
 Shulchan Arukh Choshen Mishpat 131:9.
 Yaakov Bazak, "Heskemei Bituach Yami (Cambium) Be-sifrut Ha-shut Shel Ha-mea Ha-shesh-esrei," Sinai 65, Nisan/Iyar 5735, pp. 43-60.
 For instance, a prominent encyclopedia dates the origin of maritime insurance to the fifteenth century CE, whereas there are responsa dealing with this business from hundreds of years earlier.
 Yoreh Dea 173 at end, s.v."katav ha-ribash", p.22b.
 Referring to the case in Bava Metzia 69b.
 The implicit suggestion is that since the risk of loss falls on the lender, he is in effect the owner of the ship and the payment he receives is only a rental. The Ribash explains that since he never takes possession of the ship, it is impossible to accept this point of view.
 In any given currency; of course, dollar bonds are very risky when viewed in terms of the return in yen. The low risk is not only because the government is extremely likely to pay back the loan, but also because a default would be correlated with a collapse of the currency itself; therefore, there is a tiny risk of loss denominated in a given currency terms.
 Bava Metzia 63b.
 Bava Metzia 70b.
 Kaftor Va-ferach chapter 44. Rabbenu Ha-ezri was the great-grandfather of Rav Ashtori Ha-farchi, author of Kaftor Va-ferach.
 Bava Metzia 70a.
 An approximate parallel in common law is the doctrine of "consideration." Obligations incurred without "consideration" - some kind of concrete or symbolic recompense - are not enforceable. An asmakhta is a case where consideration is obviously inadequate.
 Choshen Mishpat 207:17, in the name of the Beit Efraim. The question is also discussed in Pitchei Choshen on Kinyanim 21:7,27.
 Beit Efraim, Choshen Mishpat 34.
 There is a fundamental dispute among the Rishonim as to whether sitomta can give validity to a kind of acquisition which is usually considered invalid - including asmakhta, davar she-lo ba la-olam (an object not yet extant), and so on. The Mordekhai quoting Rebbe Yechiel (quoted in Ketzot Ha-choshen 201) explicitly states that the force of sitomta can not exceed that of a regular conveyance; whereas the Rosh (Responsa Rosh XII:2) holds that a sitomta is valid in a situation which would otherwise be an asmakhta. It may be that the root of the disagreement is the source of the problem in davar she-lo ba la-olam and asmakhta. Is the problem a lack of sufficient earnestness (da'at) - because the object is not before us, or because it is not clear that the situation giving force to the conveyance will actually occur? Or is there a fundamental impossibility of making a ma'aseh kinyan (act of acquisition) if there is no object to which it can apply or if the act is only conditional? Sitomta demonstrates a high degree of earnestness, since it is a customary act, but can not change the fact that there is nothing there to which a kinyan could apply.
 The question to which the Beit Efraim replies asks whether the standard insurance contract is valid "according to the law or according to custom," but not whether it is valid at all. Pitchei Choshen, Kinyanim 21:7 addresses the question similarly.
 Sanhedrin 23a and frequently in other locations.
 Choshen Mishpat 207:3.
 But compare Pitchei Teshuva on Yoreh Dea 173:10 where he quotes the Responsa Radbaz I:497 who considers the insurer's agreement in the kind of maritime insurance forbidden in the Ribash and Beit Yosef, as discussed above in this article, to be not binding due to asmakhta. The "insurance" money given at the beginning of the trip, to be forfeited if the voyage fails, is not actually conveyed to the insured. There is no direct contradiction, since different decisors are involved, but the usual assumption is that the Pitchei Teshuva's responsa references are meant to be authoritative. While the cases differ, in some ways the case of the Radbaz is even stronger than any discussed by the Beit Efraim, since the insurer pays up front instead of merely promising to pay, and the validity should follow a fortiori from the case where the insurer gives a mere note up front, which the Beit Efraim views as a particularly strong case. This seeming discrepancy requires further study.
 Bava Batra 173b. The common law has adopted an almost identical approach by viewing "detrimental reliance" as a form of consideration.
 Responsa Ribash 308.
 Responsa Rosh 66:9, mentioned in Tur Choshen Mishpat 207. See Ketzot Ha-choshen 207:4 who wonders why this is not a case of "arevut" or guaranteeing, as indeed the Beit Efraim rules regarding insurance agreements. The implication is that the reliance value of being an arev is a solution to the problem of kinyan as well as to the problem of asmakhta.
 Since it was made without a kinyan.