Saturday, June 16th, 2012

Scraps of marine insurance history

Most people think insurance was invented at Lloyd’s Tea House in London in the 1700’s. This is not so far from the truth, notwithstanding that the Greeks and Romans were using maritime loans. Separate marine insurance contracts were made to go with them, particularly notable in Genoa in the 1300’s.

Before that, it is said that the concept of shared risk, the essential element of insurance, was in use on the rivers of China 10,000 years ago. A silk farmer upriver hired a boatman to take his bundles of raw silk down to the coastal city to be woven. The river rapids would sometimes ruin the boat and the farmer would lose his crop for the year. Silk farmers got together and agreed to cart their bales of silk to a common place where the boatmen could take one bale of silk from each farmer. Then, if a boat was wrecked no one farmer would lose his whole season. It could be said that the cost of reducing the risk was in part the time it took to have the meeting and the expense of staying in communication to arrange when and where the farmers and the boatmen would meet. There were further expenses to the farmers and the boatmen for travel to the common meeting place.  The cost of doing modern marine insurance contains the same elements of organization and timing.

But Edward Lloyd opened a coffee house in Tower Street in the wharf area of London in 1687 or 1688 (depending on who you read); by 1696 he had, because most of his clientele were mariners and spoke of shipping news, created Lloyd’s List, a publication of the coffeehouse spoken news. Among the patrons were other men of means who were looking for ways to invest capital. Those men began using slips of paper to record their participation in the assumption of risk, which they were paid to take from the shoulders of the owners of cargo. A slip headed with the name of a ship, the voyage description and projected dates, and the cargo type was passed around the coffee house and those willing to assume some of the risk of loss of the cargo due to the ‘perils of the sea’ signed their names underneath the declared risk.

Here began the use of the jargon and the actual forms of written insurance we use today. Some of the language on your commercial marine Hull insurance policy has been in use for over 200 years. This is very important because over all this time, the words have been argued over a lot, and their meaning has largely been decided.