The social roots of insurance
At Ninety, we strongly believe that insurance is fundamentally a force for social good, and that innovation is the way to drive change. Today, the connection between insurance and altruism might seem tenuous in the public imagination. The industry has been accused by both the media, and regulators of consumer harm in the name of profit, especially in relation to vulnerable or low-income customers. But as detached as it may seem from today’s commoditized market, our vision of insurance builds on an oft-forgotten past. Historically, insurance itself has been an innovation to help those in need.Historically, insurance itself has been an innovation to help those in need. Click To Tweet
Insurance in some guise has been part of the fabric of society since prehistory, before companies and even before money. Its foundational principle was mutual assistance within a community, aiming to prevent any members from becoming destitute. This unwritten social contract worked as an IOU; if one member’s home was destroyed, others in the community would help to rebuild it, on the premise that they would be treated the same. There was also rudimentary risk mitigation, with additional grain stored being maintained to feed the hungry during times of famine. This was a simple system, built on loyalty and trust.
As time passed, the structures of insurance developed, but the foundation of helping community members experiencing hard times continued to be front and centre. In Greek and Roman times, they founded “benevolent societies,” which looked after their members’ funeral costs and their surviving family. Further down the line during the Middle Ages, 17th and 18th centuries, what was covered by the societies evolved to include sickness and debt. This is the legacy behind the fact that some insurers still refer to themselves as “friendly societies.”
Of course, it would be wrong to suggest that the history of insurance has always been unproblematic. In an early form of political insurance, the reigning elite of the Ancient Persian empire Achaemenian obliged all groups in society to give them gifts in return for keeping them safe. And though Lloyd’s of London began in a London coffeeshop to protect the fates of local merchants, its insurance of slave traders and their ‘cargo’ of subjugated human beings helped to support the inhumane trade (a lawsuit was filed against them for their role in slavery by the descendants of slaves in 2004). But although in many cases, insurance has been part of structures that have maintained the established order, often ending up on the wrong side of history, it has notably also continued to innovate to change society for good. I want to share one example which I find particularly inspiring.
Necessity is the mother of innovation
When people think about someone working in insurance, what comes to mind? Perhaps someone based in Fenchurch Street, wearing a suit, analysing spreadsheets of actuarial data with the mind of a businessman. Instead, I ask you to imagine someone totally different. Imagine an elderly man, not in a suit but a cassock, sitting in a church in rural Scotland, analysing the demographic data of his parish not through the eyes of a businessman, but a clergyman. In 1744, two such men came together and designed an insurance proposition. I first came across this incident when reading Harari’s influential work Sapiens. What makes this story notable to Harari is that the two ministers in question, Webster and Wallace, were not mathematicians; they were motivated to innovate for the common good.
The issue that the two ministers were innovating to solve was the fate of the widows and children of dead clergymen, who were often left destitute, homeless and vulnerable. They decided to set up a fund that all local clergymen would pay into every month. This money would be invested, and paid out to the minister’s family when he passed away. To execute their vision, the ministers collaborated with a mathematician called Colin Maclaurin, who combined the church registers with earlier demographic analysis by Edmund Halley (yes, the comet guy – he was a man of many talents), to predict with remarkable accuracy exactly how much ministers would have to pay to cater to the needs of the widowed. They had just invented what is now often credited as the first European insurance and pension fund.They had just invented what is now often credited as the first European insurance and pension fund. Click To Tweet
Webster and Wallace’s ideas were instrumental in the formation of later benevolent institutions such as Scottish Widows, now one of the world’s most recognised insurance and pensions brands. But I think the real reason that people are drawn to this story – there’s a lot of commentary about it online – is because it began with the humble aim of helping the community. I hope that this brief trip through the history of insurance inspires you to reflect on the power of insurance to act in the name of social good, and the role that we can all play in making this happen.
“Historical Development of Insurance.” Encyclopaedia Britannica. https://www.britannica.com/topic/insurance/Historical-development-of-insurance
“Six Million Insurance Customers are Being Hit by Loyalty Penalty.” Guardian. https://www.theguardian.com/business/2019/oct/04/six-million-insurance-customers-hit-by-loyalty-penalty
“The contribution of insurance to British economic and social history and its relevance to the future: a very short survey.” British Insurance Law Association. https://www.blmlaw.com/images/uploaded/File/16182076_1BILA_article_on_insurance_in_econ_and_social_history_(3).pdf
“How the priests created effective insurance and pension funds that have been operating for more than two hundred years.” Enpi.kz https://lifeinsurance.kz/en/mirovoy-opyt/kak-svyashchenniki-sozdali-effektivnye-strahovye-i-pensionnye-fondy-rabotayushchie-uzhe-bolee-dvuhsot-let
“Napoleon, two scottish ministers and the birth of the insurance funds industry.” The Prisoner and the Penguin.
“Friendly Society.” Encyclopaedia Britannica. https://www.britannica.com/topic/friendly-society
“Slave descendents sue Lloyd’s for billions.” Guardian. https://www.theguardian.com/money/2004/mar/28/insurance.usnews
“The History of Insurance.” Wikipedia https://en.wikipedia.org/wiki/History_of_insurance
Sapiens: A Brief History of Humankind. Yuval Noah Harari.