Archive for History of Insurance

A Brief History of Insurance: Part 8 Lloyds and World Insurance

A Brief History of Insurance:

Part Eight: The emergence of Lloyd’s as the worlds major insurance organisation:

In the previous article in this series we learnt about the humble beginnings of Lloyd’s as a relatively small coffee shop on Tower street. Whether it was an incredible piece of foresight or simple luck Lloyd developed a very specific clientèle of sailors, ship owners and merchants for boat insurance and marine cargo insurance risks.

Lloyds wasn’t the only coffee shop to do insurance business but it set the standards. In 1748 nearly one hundred houses including the famous coffef houses of Jonathan’s, Garraways and others were destroyed by a fire that ravaged Cornhill and in which scores of people perished and damage to the exent of £200,000 (nearly 200million in todays money) was caused. This event and another in the Cornhill when it was again destroyed by fire in 1765, left Lloyds in a prominent trading position.

It is evident however, that Lloyd cultivated this customer base by providing reliable and regular updates on the shipping news to those that visited his coffee house and soon Lloyd’s had established itself as a focal point within the very heart of the Shipping industry.

It was therefore inevitable that the coffee shop also quickly became a second home to a number of early insurers seeking to business with the Lloyd’s clientèle. Similarly it soon became accepted that if you were a merchant seeking insurance, then Lloyd’s was always a recommended first port of call. In fact within just three years Lloyd’s had grown to a level of importance and popularity that a new location was required and Lloyd moved his coffee shop to Lombard St – where it would remain for the next 83, years long after Lloyd himself had passed away.

As Britain established itself as a leading economic power through the exploitation of the slave trade, the shipping industry was at the heart of this economic boom. As slave trading was a high risk trade (1053 slave vessels are recorded as having been lost between 1689 and 1807) the insurers of Lloyd’s also found themselves in high demand.

Lloyd himself died in 1713 however his legacy remained strong.

Lloyds Fire at the Royal Exchange

In 1774 when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange in London, they became The Society of Lloyd’s. The Society’s objectives included the promotion of its members’ interests and the collection and dissemination of information amongst members helping them to further dominate the marine insurance industry which indeed they had created.

The first Lloyd’s act was passed in parliament in 1871 and it was this act that gave the Society a firm footing both  commercially and legally and it continued to remain at the heart of the insurance industry, growing in tandem with the industry to eventually become one of the most powerful and well respected organisations in the world today.

In fact in many ways very little of Lloyd’s of London then changed for almost a century and this is even true of their motor insurance risks department. The membership of the society, which was made up in the main of market participants, became the market specialists. Lloyd’s continued to grow, and it’s members continued to flourish, mostly due to the force of economics. Insurance moved from being desirable to essential across just a few centuries. If you were in shipping you needed marine insurance. If you needed marine insurance you got it from Lloyd’s. It was as simple as that.

marine insurance

However, eventually the bubble had to burst. Just under a hundred years after the first Lloyd’s Act had been passed, the membership of Lloyd’s was realised to be too small for the risks that it was underwriting. The Cromer report commissioned in 1968 advocated opening membership options to both non-market participants and crucially to non-British subjects for the first time.

The insurance industry had become a global industry and Lloyd’s had to adapt to survive. In the next article in this series we shall explore the rise of insurance in the US and how they too had to adapt to the globalisation of the industry within the twentieth century.

A Brief History of Insurance: Part 7 Lloyds and the London Market

A Brief History of Insurance:

Part seven: A small coffee shop called Lloyd’s

Welcome back to this series which aims to briefly plot the key times and places in the historical journey of insurance, from the earliest Chinese civilisations some seven thousand years ago right through to the modern day. As we discovered in the last article in this series, the seventeenth century was of major importance to the development of insurance.

The tragedy of the Great Fire of London saw the first insurance company The Fire Office appear and soon after a number of competing fire insurers had arrived including Sun Fire Office, which we now know today as RSA – one of the largest insurers in the word.

We also discovered that the era was one of great advancement in the field of mathematics, which led to the emergence of first true development of actuarial systems and relatively sophisticated risk management models.

Of course no history of insurance would be complete without reference to Lloyd’s of London and it was during this same period of innovation within insurance, that Mr. Edward Lloyd opened his first coffee shop in Tower Street, London.

Lloyd's 1743

It needs to be mentioned that the coffee shop of the seventeenth century was a far more important venue within a society than your local Starbucks or Costa Coffee is today. In fact at this time the coffee shop was a relatively new phenomenon in Europe.
Whilst they has been in existence in the Muslim world for much longer, they had only recently appeared within the West.

Originally thought to have been introduced to Europe via the Kingdom of Hungary, the first documented coffee house to open in Europe was in Venice in  1645.

The first English coffee house, The Grande Café, opened in 1650.
Less than a century later there  were 551 coffee houses in London alone.

A fundamental reason for the success and popularity of these coffee shops was that they were great social levellers. They welcomed men from all levels of society and as a result they became synonymous with equality, republicanism and the ideals of a free market.
As such it was almost inevitable that the coffee houses of the late seventeenth century were to become vital hubs in which to discuss politics, the current affairs of the day and of course business.

It was 1688 when Edward Lloyd first opened his own coffee house in Tower Street, London.
Capitalising on the current growth in popularity for coffee houses across the city, Lloyd was able to carve a strong niche  in the city by providing regular and reliable news from the shipping industry.
Soon Lloyd’s of London had a vibrant and faithful community of sailors, merchants and ship owners visiting the coffee house on a daily basis.

It was not long before  Lloyd’s of London had become synonymous with the shipping industry and establishing itself as the key meeting place to discuss business in the shipping world.

In the next article within this series we shall look at how boat insurance and the shipping industry became intrinsically linked and how Lloyd’s of London developed from a humble coffee shop to one of the major organisations in modern insurance.

A Brief History of Insurance: Part Six- The First Insurance Company

The World’s First Insurance company -The Fire Office and a man called Halley

In the last article in this series we had arrived at the seventeenth century after a whistle-stop tour of the continuous evolution of insurance across the last 7,000 years or so!

We had just discovered that what is generally regarded as the worlds first ever Insurance company – The Fire Office, was created from the ashes of the Great Fire of London and it is with the Fire Office that we shall continue our journey through the history of insurance….

‘The Fire Office’ was opened by Nicholas Barbon not long after the Great Fire had ravaged some 13,000 homes across the English capital. Barbon himself is acknowledged as being one of the first proponents of the free market and a leading economist and financial speculator of the time – he also had a ruthless eye for a business opportunity.

Predictably as the Fire Office flourished so other companies soon mirrored his business model and a precedent had now been created for insurance to evolve once more. Providing insurance was no longer limited to wealthy private individuals, but instead a developing industry, with dedicated companies establishing specialist commercial insurance and personal insurance products.

This period thus introduced a legacy of professionals who would ultimately establish an insurance industry which would impact upon the lives of almost everyone within the modern world. It is interesting to note that one of The Fire Office’s earliest major competitors was the Sun Fire Office, who, after numerous mergers and acquisitions across the centuries we now know as RSA – one of the worlds largest insurers.

Whilst these early insurance companies actually resembled something more akin to a private fire service (there was no state fire service until 1865), they were soon to develop into far more sophisticated organisations and a large part of this development was made possible by the scientific and more specifically mathematic progress of the time.

As the great fire had swept through London, so through Europe spread an appetite for understanding and a series of extraordinary advances in mathematics established themselves and flourished across Germany, France and England. With them the ability, need and desire to asses and place a valuation on personal risk through more refined, scientific systems also appeared. Economic concepts such as compound interest were re evaluated and revitalised for this modern era where innovative fledgling financial products were rapidly appearing. At the same time more complicated concepts such as probability theory emerged allowing for more sophisticated methods of evaluating risk to appear.

It was through the application of these newly developing mathematic disciplines that London draper John Graunt was able to establish predictable patterns of longevity and death within a defined group of people, regardless of any uncertainty about the future longevity and death of any one individual.

The work that Graunt completed was to become the foundations of an actuarial life table, which is absolutely fundamental to establishing costs for premiums in modern insurance.

However, it was a certain Edmond Halley (yes the same chap that discovered Halley’s comet) who further expanded upon Graunt’s work some thirty years later. Halley was able to demonstrate how to create an insurance scheme to provide life insurance for a group of people, and then calculate with a far greater degree of accuracy than had ever previously been possible, exactly how much each person in the group should contribute to a common fund assumed to earn a fixed rate of interest. Indeed Halley went on to create a life table to calculate the  premium a person of any given age should pay when purchase a life-annuity.

With a business model beginning to establish itself through the development of the Fire Insurers and a new attitude towards assessing risk and applying premiums accordingly being shaped for the first time by complex mathematical theory, insurance was primed to flourish and it soon did.

It was at this point, as the end of the seventeenth century approached, that we see one of the insurance world’s most famous names appear for the first time. In 1688, in Tower Street, London Edward Lloyd opened a coffee shop.

In the next  insurance history article in this series Insurance Blog will reveal how from these relatively humble beginnings his venture went on to become Lloyd’s of London, one of the most powerful organisations in insurance today.

A Brief History of Insurance: Part 5 Post Renaissance Europe

More today from Insurance Blog for you scholars of Insurance as we take you into Post Renaissance Europe and the Great Fire of London in part five of A Brief History of Insurance:

In previous articles within this series we have discovered that forms of risk management have existed for well over seven thousand years with the ancient Chinese cultures kicking things off, before the Babylonian King Hammurabi laid down the first recorded insurance laws.

These laws, grounded in solid economic common sense spread across the trading nations of the time to land in the Mediterranean where they refined by first the Greeks and then the Romans. After the collapse of the Western Roman Empire, once again it was a sea faring merchant empires that shaped the further development of Insurance.

That empire was the merchant empire of Genoa, which had risen from being a small fishing port to perhaps the leading commercial empire of the Mediterranean Sea within a relatively short period, that we see insurance first appear as a stand alone product, separate from both the Guilds and investments.

However, as we jump just a relatively few years forward now to Post-renaissance Europe, we enter perhaps the most important and exciting period within the history of insurance, as we begin to see modern insurance policies which now very much resemble the sophisticated products we expect to see today.

Whilst the sixteenth century was a century dominated by artists and explorers, the seventeenth century was where the mathematicians, scientists and the economists entered into the spotlight.

Throughout the renaissance, Europe had begun to rediscover its hunger for knowledge, re learning many of the forgotten skills and remastering them(renaissance literally means rebirth). By the time the seventeenth century arrived the questions had become more complex and therefore so did the sciences that developed to answer them.

Europe was no longer remembering, Europe was now learning and this was to have a profound impact upon the development of insurance as an economic product.

The practice of wealthy business men providing business insurance policies for merchants and the like had become reasonably common place by the middle of the seventeenth century. It is widely documented that in his will notable poet and colonist of the time, Robert Hayman, had in fact held two separate insurance policies.

Both referred to in his will dated 1628, these were personal arrangements held with a wealthy Londoner Arthur Duck, a lawyer and member of parliament. However, it was just a matter of decades before these personal arrangements were to become replaced with the emergence of the world’s first true Insurance companies.

The emergence of these companies was encouraged by a combination of scientific and mathematic advancements and tragic circumstance. It was 1666 when the tragedy occurred. We know it today as the great fire of London.

The fire started at some time shortly after midnight Sunday 2nd September 1666 in Pudding Lane in the heart of the city and raged across London for three whole days. It is suggested that over 70,000 of London’s 80,000 population lost their homes in this tragic blaze. It was from the shock and devastation caused by the fire that England’s first ever fire insurance company arrived ‘The Fire Office’ which is regarded by many to be the world’s first insurance company.

This was the beginning of a hugely important period of development for insurance and in the next article within this series we will discover how insurance went through a phenomenal period of transformation in the final decades of the seventeenth century.

A Brief History of Insurance: Part 4 Genoa and the first ever single independent insurance contracts

In this the fourth article on Insurance Blog within this series exploring the origins of insurance we move to Medieval Europe and the invention of separate insurance contracts in 14th Century Genoa…

As you may recall from earlier articles within this series, both the Romans and the Greeks had contributed to the development of insurance, shaping it into the complex financial product that it is now quite considerably. However it was from the ashes of the Roman empire that we see insurance start to fully develop.

As we move through history and reach the medieval period which is universally acknowledged as beginning when the western Roman Empire fell in 471AD, we see the Guilds rise to prominence and amongst their functions is something remarkably akin to that of the early Roman Burial Clubs. However, they also provide rudimentary medical insurance, fire insurance, marine insurance and even personal accident insurance to their members as well as a whole host of other social and economic benefits.

In fact despite the fall of the Empire the insurance practices that have become part of every day life across Europe for Merchants, Noblemen and Serfs alike remain in place. With the importance of insurance now firmly established as a key element within any society with commerce at its heart, the varieties of insurance and the complexity of the products continues to develop throughout the Middle Ages.

Again it was Maritime insurance which proved to be the area which established itself as both the innovative and indeed original category of insurance. This is of course is easily attributable to the fact that at this point in history, the overwhelming driving force in any economy was the merchants of the sea. Boat Insurance developed more rapidly and technically than any other form of insurance at the time out of sheer economic necessity.

After the fall of the Western Roman Empire, a number of successful city-states developed to fill the vacuum created by the failure of Rome. These included Pisa, Milan, Venice and Genoa. Each of these mini- empires have a rich and fascinating history, but for the world of insurance, it was Genoa who would play the major role.

In fact Genoa is able to lay a fairly indisputable claim to be the home of modern insurance.
Genoa- Home of The Insurance Contract
It was here in the fourteenth century that we saw some huge landmark moments appear on the insurance development time-line. It is at this point in history that we start to see commercial insurance begin to establish itself as a product independent of investment. This is evident from both the inception and invention of insurance contracts which were neither included as a guild benefit, nor based on a loan.

The earliest ever recorded insurance policy discovered to date is believed to be between Amiguetto Pinello (the insurer) and Tomaso Grillo (the insured) and is dated the 13th February 1343. The contracts between the two parties are hugely important in that they mark the first steps away from what are now the ancient and archaic traditions of Marine Loans.

Whilst traditional marine loans of ancient Rome and Greece (and even Mesopotamia before them) had provided adequate coverage throughout the ancient and early medieval periods, as the commercial revolution that was rapidly spreading throughout the coastal micro empires of Italy and the Mediterranean grew, these archaic laws no longer succeeded in meeting the requirements of the modern ‘sedentary merchant’.

So the need for insurance to once again evolve led to the birth of the stand alone insurance contract.

A fascinating insight into the politics of the time is hidden away in this original contract. In fact much of the content of this original contract was necessarily fictitious. This fictitious wording was required to cloak the contracts within the phraseology of Roman Law, as at this point in history insurance contracts still had no legal standing Per Se.

In fact the work of these early pioneer insurers was constantly frustrated by existing clerical usury law and the insistence of those in authority that despite the legislation being out dated, it was relentlessly enforced.

It seems that there are more similarities than we could have imagined then!

In the next article within this series we shall look at post-renaissance Europe and perhaps arguably the most important period in the history of insurance ever – the 17th Century. This is where we see insurance arrive at what is now regarded as it’s modern day home – Lloyd’s of London.