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10 Swiss Re A History of Insurance
The birth of modern insurance The Age of Reason or Enlightenment o means of communication within the the 17th and 18th centuries provided the economy and contributed to more and grounds for accepting actuarial science more problems being expressed in terms s a rational means to conduct bette of costs and time business Insurance, and especially life insurance resonated with the search Not all cultures adopted such thinking for laws, the statistical recording of natural from the start. In Southern Europe. it took vents and the calculation of future a catastrophe to change the perception developments. Behind this innovation w of risk and the views on destiny. The Great he conviction that the world and its Lisbon Earthquake in 1755 challenged possible future states, could be predicted the traditional interpretation of divine mnipotence. Almost the entire city was Insurance created a vital counter balance to the new and potentially destabilising forces that were transforming the division of labour. urbanisation and the economics of trade Insurance was thus an ideal laboratory municipal buildings, but, much to the for enlightened business ideas. The concern of many survivors, the red-lig process of collecting different types of district was left intact. How could a stitutional and personal information and benevolent God allow this, and why did using underwriting to transform it into an all-powerful God not prevent it? quantifiable costs was important. It created vital counterbalance to the new and Was mankind really meant to take destiny potentially destabilising forces that were into its own hands? Rational thinkers were ransforming the division of labour increasingly seen to be on the winning urbanisation, and the economics of trade. side of the argument, and although the Insurance also helped money become the hquake did not immediately boost the idea of rise to modern seismology. abandoned in the 1840s. In 1868 it collapsed killing eight men and boys. Sugar had become an important catalyst for industrial growth in England. Refining of the raw sugar at plants in Europe was associated with a considerable fire risk. In the second half of the eighteenth century. fires at sugar refineries accounted for a large proportion of all bankruptcies in England Only two of the fire insurance companies at the time also insured sugar refineries, albe at inflated rates and with meagre policy limits in1782 in London founded a joint-stock insurance company. the phoenix. They were the first ones to specialise in insuring large industrial risks and, on the trail of sugar, to deliberately export this modern form of insurance Opposite: The Great Fire swe London fro 2 to 5 September in It destroyed over 0000 homes. al six deaths were ecorded. It did not ng for the first fire insurance company to be established after the Swiss
Swiss Re A History of Insurance 11 The birth of modern insurance The Age of Reason or Enlightenment of the 17th and 18th centuries provided the grounds for accepting actuarial science as a rational means to conduct better business. Insurance, and especially life insurance, resonated with the search for laws, the statistical recording of natural events and the calculation of future developments. Behind this innovation was the conviction that the world, and its possible future states, could be predicted and computed. Insurance was thus an ideal laboratory for enlightened business ideas. The process of collecting different types of institutional and personal information and using underwriting to transform it into quantifiable costs was important. It created a vital counterbalance to the new and potentially destabilising forces that were transforming the division of labour, urbanisation, and the economics of trade. Insurance also helped money become the means of communication within the economy and contributed to more and more problems being expressed in terms of costs and time. Not all cultures adopted such thinking from the start. In Southern Europe, it took a catastrophe to change the perception of risk and the views on destiny. The Great Lisbon Earthquake in 1755 challenged the traditional interpretation of divine omnipotence. Almost the entire city was destroyed, including churches and municipal buildings, but, much to the concern of many survivors, the red-light district was left intact. How could a benevolent God allow this, and why did an all-powerful God not prevent it? Was mankind really meant to take destiny into its own hands? Rational thinkers were increasingly seen to be on the winning side of the argument, and although the Earthquake did not immediately boost the idea of insurance in the South, it gave rise to modern seismology. Right: The Old Sugar House in Hull had been set up to compete with London refineries but was abandoned in the 1840s. In 1868 it collapsed killing eight men and boys. Sugar had become an important catalyst for industrial growth in England. Refining of the raw sugar at plants in Europe was associated with a considerable fire risk. In the second half of the eighteenth century, fires at sugar refineries accounted for a large proportion of all bankruptcies in England. Only two of the fire insurance companies at the time also insured sugar refineries, albeit at inflated rates and with meagre policy limits. In 1782, eighty-four sugar refinery owners in London founded a joint-stock insurance company, the Phoenix. They were the first ones to specialise in insuring large industrial risks and, on the trail of sugar, to deliberately export this modern form of insurance. Opposite: The Great Fire swept through London from 2 to 5 September in 1666. It destroyed over 70000 homes, although only six deaths were recorded. It did not take long for the first fire insurance company to be established after the catastrophe. Insurance created a vital counter balance to the new and potentially destabilising forces that were transforming the division of labour, urbanisation, and the economics of trade
The birth of modern insurance In England it was the great Fire of The immediate success of such join London in 1666 which had changed stock corporations was, however, dealt a public opinion. Hardly any of the significant blow as it led to speculation 70000 destroyed homes were insured. and subsequently ruin, as happened in the South sea bubble in 1720. The rational of the Enlightenment also a fortune out of rebuilding the city and tempted many investors to abuse the then turned to insuring the houses sound concepts of insurance to bet on His main motive was not solidarity but the most unlikely risks, such as the outcome business, pure and simple. His rational of wars, the danger of dying from excessiv approach and his experience as a banker consumption of gin, or the date of birth and mortgage provider made him realise of heirs to empires. The government that his insurance company needed to subsequently banned some forms of be built on a different financial foundation. insurance. a ban on reinsurance had and so. in 1681. he created the first already come into force in 1746 Still it seemed there was an inevitable Below Shareholding was to become essential logic in developing insurance further. The Phoenix emblem with the monument for modern insurance as it allowed the The economist Adam Smith praised it to the Great Fire of London in the background. separation of operating capital from risk as a rational invention and even a moral The Phoenix managers were the first to venture out beyond the borders of their own country capital and provided funds to expand obligation Not to insure oneself he with agencies. Along with the new joint-stock business into new lines and beyond the considered a"thoughtless rashness and marine insurance companies and Lloyd's of home market presumptuous contempt of the risk London, they were among the first to respond to the rapid increase in the interdependence of the global economy that had been und way since the middle of the eighteenth century. A DT NEW FIRE OTPICE
12 Swiss Re A History of Insurance The birth of modern insurance The immediate success of such joint stock corporations was, however, dealt a significant blow as it led to speculation and subsequently ruin, as happened in the South Sea Bubble in 1720. The rational business ideas of the Enlightenment also tempted many investors to abuse 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. A ban on reinsurance had already come into force in 1746. 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”. Below: The Phoenix emblem with the Monument to the Great Fire of London in the background. The Phoenix managers were the first to venture out beyond the borders of their own country with agencies. Along with the new joint-stock marine insurance companies and Lloyd’s of London, they were among the first to respond to the rapid increase in the interdependence of the global economy that had been under way since the middle of the eighteenth century. In England it was the Great Fire of London in 1666 which had changed public opinion. Hardly any of the 70000 destroyed homes were insured. One Londoner, 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
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 industrial revolution and the growth And so it was from Britain that property of the Empire called for insurance solutions. and life insurance started colonising the irst truly modern and global insurance orms of capitalisation, and the possibili company the phoenix, was founded by to spread risks across the globe Overleaf: an association of sugar refinery owners he 1755 Lisbon earthquake and tsunami in london soon after its foundation Altogether, this was to prove a virtually it insured risks in distant countries and unbeatable business mod Below: it was the first insurer to establish by Francois van Bleyswyck, 1743.The Verenigde Oostindische Compagnie(Dutch East India Company) in Amsterdam established the oldest known stock exchange in 1602 For insurance, shareholding was to become an ideal way to raise operating capital which 画匪■ 分) Swiss Re A History of Insurance 13
Swiss Re A History of Insurance 13 The industrial revolution and the growth of the Empire called for insurance solutions. Towards the end of the 18th century the first truly modern and global insurance company, the Phoenix, was founded by an association of sugar refinery owners in London. Soon after its foundation it insured risks in distant countries and it was the first insurer to establish offices abroad. 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. Overleaf: The 1755 Lisbon earthquake and tsunami. Below: The Amsterdam Stock Exchange, engraving by François van Bleyswyck, 1743. The Verenigde Oostindische Compagnie (Dutch East India Company) in Amsterdam established the oldest known stock exchange in 1602. For insurance, shareholding was to become an ideal way to raise operating capital which allowed them to expand their business. And so it was from Britain that property and life insurance started colonising the world, based on modern science, new forms of capitalisation, and the possibility to spread risks across the globe. Altogether, this was to prove a virtually unbeatable business model
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14 Swiss Re A History of Insurance The birth of modern insurance