The History of Insurance - Part Two

Water, Fire and Life!

In The History of Insurance Part One, we discovered that insurance as a concept, can be dated as far back as 1750 BC with the Ancient Babylonians.

Talking about ancient civilizations, the ancient Greeks (according to Resource Center) believed, as far back as 450 BC, that there were 4 elements that everything was made up of: earth, water, air, and fire. This theory was later supported and added to by Aristotle. The idea that these 4 elements made up all matter was the cornerstone of philosophy, science, and medicine for about two thousand years.

It’s kind of uncanny because 2 out of the 4 elements that made up all matter, are also the cornerstone of insurance. Those 2 elements are water and fire. 

And in the midst of all of this (inevitably) is life. Another cornerstone of insurance. 

Funny how all these things seem to come together.

So, let’s take a look into a brief history of water, fire, and life…. In insurance.

Water, water everywhere but not a drop to drink!

In the late 1600s, shipping and moving goods (“goods in transit”) had only just begun. Voyagers had only just started travelling by sea between the New World and the Old as exotic foods, spices and fabrics were ferried back home.

It was here that the concept of “underwriters” began.

A coffeehouse owned by Edward Lloyd was the primary meeting place for merchants, ship owners and others seeking insurance. You see, in order to finance a voyage, the merchants and Maritime companies would seek funding from the “venture capitalists” of the day. In exchange for their “investment” in the voyage, the venture capitalists were guaranteed a return from all the exotic goods found in the New Worlds and ferried back to the Old.

Once the voyage was secured by the venture capitalists, the merchants and ship owners then went to the coffeehouse owned by George Lloyd (referred to as “Lloyd’s) to give a copy of the ship’s manifesto to investors and “underwriters” who frequented the coffeehouse.

What are underwriters?The word underwriter is said to have derived from “the practice of having each risk taker write his name under the total amount of risk that he was willing to accept at a specified premium”.

Those investors or “underwriters” interested in taking on the risk (associated with the contents of the ships), signed at the bottom of the ships manifest - just beneath the figure indicating the share of the cargo for which they were taking responsibility. Hence the term “underwriting”. By doing this, a voyage often had multiple underwriters, all sharing in a piece of the pie (aka the risk).

But these “underwriters” weren’t fools. They often spread their risk by taking shares in several different voyagers, in a way “hedging their bets” - securing a return in their investment from at least one of the voyages importing gold, exotic food, spices, fabrics or (later) tobacco.

And it is with these Maritime endeavours that the beginning of modern-day insurance and underwriting (as we know it today) found their beginnings.

  • An interesting fact! 

According to Lloyds of London –

“In the London of the 1600s, business was done at the Royal Exchange, but news and information were gathered in the sociable atmosphere of the coffee houses. By 1663, over 80 coffee houses could be found within the old Roman walls of the City of London. Inside, entrepreneurs, writers and poets would drink, think, and talk into the night. Edward Lloyd (1648 – 1713) came to London, it’s thought, from Canterbury, arriving with his wife Abigail in about 1680 at the age of 32. The city at this time consisted of two worlds: ships and money. Both converged in a tiny area between the Tower of London and Thames Street, close to the Navy Office in Seething Lane, where Samuel Pepys had worked. Each coffee house had a specialist interest, and it was here, in now-lost Tower Street, that Lloyd opened his own coffee house, and began attracting all those concerned with shipping. The place became a favourite haunt of ship’s captains, merchants, and ship owners. What made this emporium stand out is that Lloyd understood the vast importance of information to business. He went out of his way to supply it, publishing a regular sheet of intelligence on ships, cargo, and foreign events, and establishing a network of correspondents in ports across Europe. By 1691, business was booming, and Lloyd moved to 16 Lombard Street, across from the Royal Exchange and in the heart of the merchants’ quarter. Lloyd’s staff of three men and two girls dispensed coffee, tea and sherbet, a fruit punch, and saw that the regulars had pens, ink, and paper. Lloyd by now hosted regular candle auctions, a pulse-racing business where bidding on ships’ cargoes began when a stub of candle was lit; the successful bid was the last before the candle guttered. Lots included ‘a parcel of Turkish coffee’ and ’53 hogshead of extraordinary, neat Red French wines’.”

It is commonly understood that Lloyds of London as we know it today was founded by Edward Lloyd at his coffee house on London's Tower Street in 1688. As quoted by Lloyd’s of London 

“How could he guess at what would follow, and that a world-renowned force for progress, innovation and security had been founded in one small shop?”

But water is only one of the elements that play a part in the History of Insurance.

And it burns, burns, burns the ring of fire!

With some of the earliest insurance being taken out against sea voyages, it leaves little wonder that another element would have a role to play.

After The Great Fire of London in 1666 that destroyed a large part of London - including most of the civic buildings, old St. Paul’s Cathedral, 87 parish churches, and about 13,000 houses - it comes as no surprise that underwriters would have a role to play in fire damages.

  • Hardly any of the destroyed buildings were insured!

You see, London was still recovering from The Great Plague that had completely ravaged its population just a year earlier. In fact, The Great Plague was “the worst outbreak of plague in England since the black death of 1348. London lost roughly 15% of its population. While 68,596 deaths were recorded in the city, the true number was probably over 100,000.” 

And the survivors of both The Great Plague and The Great Fire found themselves homeless.

As a response to the chaos and outrage that followed the burning of London, groups of underwriters who had dealt exclusively in marine insurance now formed companies that offered fire insurance.

  • What is fire insurance? 

The term fire insurance refers to a “form of property insurance that covers damage and losses caused by fire. Most policies come with some form of fire protection, but homeowners may be able to purchase additional coverage in case their property is lost or damaged because of fire.”

But it was due to one specific Londoner, named Nicholas Barbon - widely considered to be the founder of fire insurance - that fire insurance really came to the fore. According to the in-depth research report by Swiss Re on A History of Insurance -

“Nicholas Barbon made a fortune out of rebuilding the city and then turned to insuring the houses. His main motive was not solidarity but business, pure and simple. His rational approach and his experience as a banker and mortgage provider made him realise that his insurance company needed to be built on a different financial foundation, and so, in 1681, he created the first known joint stock insurance company. Shareholding was to become essential for modern insurance as it allowed the separation of operating capital from risk capital and provided funds to expand business into new lines and beyond the home market.

The immediate success of such joint stock corporations was, however, dealt a significant blow as it led to speculation and subsequently ruin - many investors abused the sound concepts of insurance to bet on the most unlikely risks, such as the outcome of wars, the danger of dying from excessive consumption of gin, or the date of birth of heirs to empires. The government subsequently banned some forms of insurance. Still, it seemed there was an inevitable logic in developing Insurance further. The economist Adam Smith praised it as a rational invention and even a moral obligation. Not to insure oneself he considered a “thoughtless rashness and presumptuous contempt of the risk”.”

A toast to Life!

Ethos Life insurance sets out that life insurance can be traced back to as early as 600–100 BCE in ancient Greece and Rome. These sophisticated early societies provided a form of both health and life insurance to some of their citizens.

Going into a little more detail, Think Advisor describes the following –

“The origins of the concept of life insurance, as we know it, can be traced to ancient Rome. Gaius Marius, a Roman military leader, created a burial club among his troops, so in the event of the unexpected death of a club member, other members would pay for the funeral expenses.

Many similar clubs originated in this era. Romans believed anyone who was improperly buried would become an unhappy ghost, so the clubs were embraced by the government and military because of the deep conviction that it was absolutely essential for each person, regardless of social standing, to be buried in the correct manner.”

But apart from the Ancient Greeks and Romans, the oldest Life Insurance Policy that was actually written can be dated back to 1583. According to Kessler on pgs. 186 – 187 notes on the first actual life insurance contract –

“The person insured was one William Gybbon.

Mr. Gybbon was a citizen of London. He worked as a salter, meaning that he salted meat and fish for preservation.

The beneficiary of this policy Richard Martin, and the relationship between the men was unknown. The policy was written as a one-year term. As chance would have it, Mr. Gybbon died just before the end of the year.

The underwriters refused to pay Martin on the grounds that the contract was for a lunar year. This went to the courts. The courts ruled in favor of Martin, and he was indeed paid.

From its very beginning, life insurance was controversial!”

Historically, the first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen.

The first plan of life insurance (according to Wikipedia) was that “each member paid a fixed annual payment per share on from one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the "amicable contribution" was divided among the wives and children of deceased members and it was in proportion to the amount of shares the heirs owned. Amicable Society started with 2000 members.”

Deceptively close to the type of “burial club” of the Ancient Greeks and Romans around between 600 – 100 BCE.

Funny how the more things change, the more they stay the same.

Who knew that the history of insurance dated as far back as it does. It’s been a revelation to us. An interesting one at that…

Let’s be honest, it is extremely hard to imagine a world without Insurance. For a lot of us, it has become par for the course, something you have to do as you become an adult and in charge of your own life.

  • Your life and all the contents within your life need to be insured!

We hope that we have been able to shed some light on where insurance originated. We also hope that we were able to set out some interesting information that you can take with you to your next Quiz night.

Please always keep in mind that if you have any questions on the information we have set out above or have a personal issue which you want to discuss with a suitably qualified legal professional, please do not hesitate to contact us at NVDB Attorneys.

We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart.

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter. One should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this site contain general information and may not reflect current legal developments or address one’s peculiar situation. We disclaim all liability for actions one may take or fail to take based on any content on this site.

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