ON ASSURANCE.
The history of assurance is not a sprightly theme. It is so hedged
about with details of old ordinances, tables of mortality and specimens
of fire marks, as are enough to drive the general reader into the next
parish. The historians begin as a rule with the Phœnicians. And they
are wise. Everybody has heard of the Phœnicians and that they were the
first known traders to visit Britain from overseas. You can safely
assert that the Phœnicians practised marine insurance; and on the
other hand, you can equally safely deny that they knew anything about
assurance at all for there is no one to contradict you. There is no
evidence of any kind.
This, however, is certain. Marine assurance was the first form of
assurance practised amongst men; and, inevitably, the first form. For
the risk was evident and above all could be estimated with accuracy.
The value of the ship and the worth of its cargo were known, and a
fair reckoning could be made of the perils which were likely to be
encountered on the voyage. Probably the very first edict concerning
this practice was issued when Justinian was Emperor, in the year 533.
He limited the legal rate of interest to six per cent. in all cases
except that of “Fœnus Nauticum”; and “Fœnus Nauticum” was that early
form of marine assurance which we know by the name of Bottomry. In this
one case, interest was allowed to be exacted at the rate of twelve per
cent.
Upon the heels of Justinian, however, followed the Middle Ages, and
they wiped out Justinian’s edict and any arrangement of a similar
nature, which was to be found in any parts over which the Church ruled.
Interest upon the investment of capital was accounted as usury and an
offence against God, to be corrected by burnings and floggings, and the
other delicate persuasions of those days. We have no sure knowledge
when marine insurance was revived, but we may be fairly certain that
its revival was due to the far-sighted policy of the Hanseatic League,
which had made its merchants the great sea-carriers of the Northern
nations. The League published various sea codes during the 13th century
and consolidated them at the beginning of the 14th in an authoritative
pronouncement known as “The Laws of Wisby.” Wisby was a town on the
western side of the Isle of Gothland in the Baltic, and at that time
one of the most flourishing staple towns of the North. These Laws of
Wisby do actually for the first time mention the word Bottomry, but in
such a way as to make it clear that Bottomry had long been practised.
Bottomry was a wager. The Underwriter bet the Shipowner that his ship
with its cargo would arrive safely at its port of destination. The
great difference between Bottomry and an ordinary wager, and between
Bottomry and a modern form of assurance, was this: the Underwriter paid
the money over at once, and, if he won--that is, if a ship arrived
in safety--received his money back with the addition of the premium
agreed upon. The Shipowner, in a word, held the stakes.
This primitive form of insurance developed quickly. It became insurance
as we understand it to-day. Thus in the “Chronyk Van Vlaenden”--an
ancient history--it is written:--
“On the demand of the inhabitants of Bruges, the Count of Flanders
permitted in the year 1310, the establishment in this town of a
Chamber of Assurance, by means of which the Merchants could insure
their goods, exposed to the Risks of the Sea, or elsewhere, in paying
a stipulated Percentage. But, in order that an Establishment so useful
to Commerce might not be dissolved as soon as formed, he ordered the
laying down of several Laws and Regulations which the Assurers as well
as the Assured, are bound to observe.”
Bruges was at this period the very capital of the commerce of the
North. It was the great storehouse, the chief market and the main
sea-port of that far-flung League. It was no uncommon thing for a
hundred and fifty tall ships to enter on a single tide into Sluys, the
outer harbour of Bruges.
The first definite ordinances concerning marine insurance, however,
came from a very different part of the world. The Magistrates of
Barcelona, certainly on four separate occasions during the 15th
Century, formulated Rules which were one and all intended to prevent
the over insurance of unseaworthy ships--a growing scandal and danger
of those times. The Barcelona trade was mainly with the Ports of Italy;
and the Grand Council of Venice, before the century was over, followed
in the footsteps of Barcelona. The Venetian Decree starts by declaring
that, owing to the perverse nature of mankind, people _will_ quarrel
about money matters, and proceeds to deal with such very modern dangers
as that arising from carrying an excessive cargo on deck. Ordinances
issued in Venice were certain to find their way into England, for the
Italians, or Lombardy men as they were called, had already gained a
solid footing in England, and indeed were actually carrying commercial
war into the very camp of the Stillyard.
The attack of the German Emperor upon the Pope in the first half of
the 13th Century, and the influence of the Crusades, which brought to
England in Italian Fleets spices, carpets, silks and other luxuries
from the East, were the chief causes of the Italian invasion. With
the expulsion of the Jews by Edward the First, their position was
greatly strengthened, for, in their turn, they became the usurers.
We find the Lord Mayor, at the King’s command setting aside for them
a district of London in which to reside--the district now known as
Lombard Street--and so powerful did they become that even though their
unpopularity made them objects of continual attacks by the populace and
continual Petitions for their expulsion to successive Kings, they were
only dislodged in the end by their own fears for their personal safety.
Thus, long before any decree with regard to marine insurance was
issued by a Government of England, the practice of insurance was
common and regular in the country. The first British Marine Insurance
Act bears the date of 1601, and states in its Preamble that Marine
Insurance has been “tyme out of mynde an usuage amongste merchantes,
both of this realme and of forraine nacyons.” It mentions, in fact,
“an Office of Insurance within the City of London,” where a registry
of marine insurance policies was compiled. This Act of Queen Elizabeth
established a permanent commission for the hearing of cases arising
out of policies of marine insurance. The Commission was to sit for the
time being under the presidency of the Judge of the Admiralty and the
Recorder of London. It was to consist of two members of Civil Law, two
common lawyers and eight grave and discreet merchants, and was to hold
its Sessions once a week.
The Act, however, found no favour with the Merchants of the City of
London, chiefly, no doubt, because it allowed appeals to the Court of
Chancery, which in the slowness of its procedure seems in those days
not to have lagged behind the Court of Chancery, as Dickens found
it in the days of “Jarndyce versus Jarndyce.” The Act accordingly
fell, after a generation, into disuse. But the practice of assurance
steadily increased and, with the coming of Lloyds and the granting
of the Charters to the two great Corporations--the Royal Exchange
Assurance and the London Assurance--was gradually placed upon a legal
and scientific basis.
In the order of history, life insurance followed upon marine, and fire
insurance upon life. At first sight, to anyone who forms in his mind
anything like a vivid picture of the crowded wooden houses, the medley
of thatched roofs, which made up a mediæval city, the order may seem
strange. One might imagine that the danger of fire, and the necessity
of guarding against its widespread terrors, would be ever present. But
it is necessary to remember that, as before the Great Fire went the
Great Plague in the sequence of facts, so, also, in the sequence of
loss, mortality and damage, fire limped behind disease. The mediæval
house in a dry summer was tinder to a spark, but winter or summer it
was a place of unclean rushes with little, if any, sanitation. Readers
of the “Young Visiters,” will recollect that the heroine put some “red
ruge” on her cheeks because, as she declared, she was pale owing to
the drains of the house. The demand for “red ruge” must have been very
extensive in mediæval London. There was a disease called the “sweating
sickness,” which carried off inhabitants in a few hours. The Plague
had visited the City many times before the winter of 1665, and was
to visit it afterwards. There was a violence in the ordinary conduct
of life, such as you may know after the conclusion of any great war.
Medicine was in its infancy. If your child had scarlet fever, you
wrapped it up in a scarlet cloth; if you had the stone, as likely as
not your Doctor would make a disgusting plaster, of which the chief
ingredients were headless crickets and beetles, and would rub you with
it; whilst the Clergy, into whose hands much of the duty of healing the
sick naturally fell, were forbidden by the Pope to shed blood under
any conditions whatever. Where the Great Fire barely slew a hundred,
the Plague carried off its thousands. It was natural, therefore, that
men’s minds should be set on compensations for the loss of life, before
they reached the idea of compensations for the damage done by fire.
The ancient Saxon Guilds did, in fact, attain the rudiments of life
insurance in their provisions for the payment of funerals, and for the
maintenance of dependents left in distress by the death of a member of
the Guild.
Life insurance, indeed, would no doubt have long since become as
established a fact as the insurance of ships, but for one fatal
difference. You knew the value of the ship; you knew the price which
its cargo would fetch in the market; you were upon solid ground. But
with regard to life you had nothing whatever to go upon. There were no
figures by which you could calculate the probabilities of its duration.
Life insurance was the merest gamble, and, even so late as the days of
Charles the Second, you could buy a Government annuity for ninety-nine
years for a cash payment equal to fifteen and a half year’s annuity.
The Provincial Letters of Pascal drew attention first of all to the
doctrine of probabilities, and John de Witt, a Dutchman, applied it to
the subject of life annuities. He made a report to his Government,
in which he used for the first time mathematical calculations in
considering the probabilities of life. His report had no immediate
effect. But he had sown the seed, and Leibnitz, who devoted much time
to an investigation of the theory of chances--“c’est pour perfectionner
l’art des arts, l’art de penser,” he explained--saved the essay from
oblivion.
But still there were no facts to go upon. It was the chance of the
gaming table. How many times would Number 17 or Number 26 turn up on
the Roulette board in a given evening, if neither of them had turned
up, say, for a week before? What are the odds that “Trente et un
et après” will be seen at the “Trente et quarante” table ten times
in the course of an evening? It was with the limping guidance of
such questions as these that the early forms of life assurance were
arranged. If the grantor of the annuity were generous, that helped to a
solution, but it was rare. If the annuitant himself were ignorant, that
helped too, and this was more common. Until quite recently, the value
of a life was accounted at seven years’ purchase.
The Great Plague, however, which spread so much desolation, lent a
little help in this direction. Such was the terror which the Plague
inspired, so overwhelming was the fear of its return, that what we
should now call the _morale_ of the race was shaken. The people of
those days were as vague in their computations of numbers as in their
spelling, and rumour would exaggerate into millions the deaths of
thousands. In order, therefore, to reassure the public mind after the
Great Plague, Bills of Mortality were issued by the various Parishes
by Order of the Government. Up to the end of the 17th Century the
appearance of these Bills was sporadic. But, with the beginning of the
18th Century, so useful had they already proved, they became a regular
element in Parish life. They were made up on Wednesdays, published on
Thursdays, and anyone who cared to pay 4s. a year could subscribe for a
copy.
The progress towards a system of Assurance, as will be seen, is so
far slow. We have got from the gaming tables by way of the Great
Plague to Bills of Mortality. But still there is hardly a glimmer of
science. The Bills of Mortality themselves suffered from a grievous
defect from the point of view of insurance. They included a statement
of the cause of death, and even of the particular disease from which
the patients died, if--and it is a considerable “if”--the disease were
amongst those known to the medical faculty. But they did not give ages.
And without ages the probabilities of the duration of life were still
mere guesswork. Life insurance, as we understand it, is based upon a
scientific computation in which the ages of the insured are the first
consideration. During that Century, however, three men appeared, to
whose efforts the real science of insurance owes its chief debt.
The first of these men--one John Graunt, the son of a tradesman, who
had migrated from Lancaster and settled in Birchin Lane--enjoyed
no more of the opportunities of education than the sons of other
tradesmen. He left an unknown school early for the counter of his
father, shared in the public work of his Ward, and became a Major
in the train bands; but some spark in the man set his thoughts upon
the laws of life so far as the Bills of Mortality helped to their
elucidation. He seems to have been impressed, and even annoyed, by the
extraordinary carelessness with which men reckoned the population of
London. It was spoken of in millions. One grave writer, indeed, went so
far as calmly to assert that there were two million less people living
in London in one particular year than in the year which had preceded
it; and he made this astounding statement as though it were a matter
which anyone might expect.
John Graunt published in 1662 his “National and Political Reflections
on the Bills of Mortality.” The work made a great stir, and did not,
by the way, increase its author’s popularity, for he accounted the
population of London at 384,000, and this calculation, which was very
near the truth, did not find favour in the eyes of those swelling
signors who only condescended to think in millions. The book, however,
within the year, passed into a second edition. It set men thinking,
and it impressed one, whom, most of all, so dry a subject would have
been likely to repel--no less a person than His Majesty Charles
himself. Charles the Second recommended John Graunt to the Royal
Society, and charged the Fellows in round terms “That if they found any
more such tradesmen they should admit them all.” The book found its way
across the Channel, and in consequence Louis XIV. ordered a register of
births and deaths to be kept in France, of a character much more strict
than was observed in any other country of Europe.
The Reflections contained many surprising odds and ends of calculation.
John Graunt computed that seven men out of every hundred in England
live to the age of seventy; that only three women out of two hundred
died in childbed and only one in labour; and that out of one hundred
people, only one will be left alive at the age of 76 and none at the
age of 80. He deduced from his calculations that the world was not
more than 100,000 years old, and he drew, probably for the first time,
that distinction in land values which has made, and continues to
make, so loud a stir in our generation. For, in putting questions as
to the amount of hay an acre that a meadow might bear, or the number
of cattle which it might feed, he adds “of which particulars I quote
the intrinsic value, for there is another value, merely accidental or
extrinsic, consisting of the causes why a parcel of land lying for a
good market may be worth double another parcel, though but of the same
intrinsic goodness; which answers the question why lands in the North
of England are worth but sixteen years’ purchase and those of the West
above twenty-eight.” He aimed at classifying the vocations of men,
with a word, by the way, against Doctors, who persuade “credulous and
delicate people that their bodies are out of tune.” He thus raised a
number of interesting problems for the speculation of thinking men, and
there is little doubt that to the influence of his book was due a vital
amendment in the Bills of Mortality. In 1728, the ages of the dead were
included as well as the ailments from which they had died.
The second of the three men was Sir William Petty, a man of a very
different stamp. He was a speculator; he had a great love of money and
a great love of land. He probably had a sense of humour, for, when
challenged to fight a duel and having the privilege of choosing the
place and the weapons, he selected a dark cellar and a carpenter’s axe.
He certainly had the ambition to found a great family and leave to it a
great inheritance, and in this he succeeded. He was the son of a Romsey
tailor, and he left the house of Lansdowne.
Petty wrote “An Essay on Arithmetic concerning the Growth of the
City of London, with the Measures, Periods, Causes and Consequences
thereof.” Petty estimated that in 1682 the population of London was
670,000, it having doubled itself within the preceding forty years. He
was at a loss, however, to account for the increase. He could, he said,
pick up some remarkable accident and declare it to be the cause, “as
vulgar people make the cause of every man’s sickness to be, what he did
last eat.” But Petty was not content with such a device, and preferred
to attribute the swelling numbers to some natural and spontaneous
advantage that men find by living in great societies.
There is already, as you will see, a glimmer of science, but still not
much more than a glimmer. Sir William Petty was led on to some curious
prophecies. For instance, the world would be fully peopled within the
next 2,000 years, and the growth of London must stop of its own accord
before the year 1800 was reached.
The influence of these two men upon thought continued to grow, and in
the year 1693, the most important year in the history of the science of
insurance, Doctor Halley, the Astronomer Royal, published in a pamphlet
a table of probabilities of the duration of human life at every age. He
at last had something to go upon. He had discovered that the town of
Breslau, in Silesia, had regularly issued Bills of Mortality in which
the ages of the dead were recorded. He took the rate of mortality in
that town during five successive years, and for the first time based
the calculation of the duration of life upon a scientific foundation.