By A. W. Cupid, Manager Marine Department, Oakland

The exact origin of ocean marine insurance, respectable and useful instrument of commerce, is shadowy in the mists of time. So let us say that, like Topsy, it "just grew." In fact, it has been growing for nearly eight centuries! During this time it has gone forward with trade and commerce as a means of distributing marine losses; during the centuries it has evolved into its present form.

An ancient but indirect form of insurance was hit upon by the commercial money men of an early day. This was by use of bottomry bonds. Ship-owners of that time borrowed money in order to finance maritime enterprises; and their security was their vessels. The document which detailed the terms of the transaction was called a bottomry bond. The amount of the loan was repayable, plus interest, upon safe arrival of the vessel at its named destination. If the ship failed to arrive, however, the obligation of the borrower was cancelled—no requirement, then, to repay the loan.

Since, under this system, the money was advanced to the vessel or cargo owner before loss, the method was really the opposite of our present system of marine insurance, under which, for a rate of premium, an agreed amount is payable after loss. The word "insurance" with its modern meaning is believed to have occurred as early as 1310, at which time "On the demand of the inhabitants of Burges, the Court of Flanders permitted the establishment in this Town a Chamber of Assurance, by means of which the Merchants could insure their Goods, exposed to the Risks of the Sea, or elsewhere, by placing a stipulated Percentage."

As overseas commerce grew, so marine insurance took on a definite pattern – a pattern regulated by codes and ordinances. The magistrates of Barcelona issued such a code as early as 1435. By the end of the Sixteenth Century marine insurance was probably generally practiced in all Continental countries and in England, where, in 1601, during the reign of Queen Elizabeth, Parliament passed "An acte concerninge matters of Assurances amongste Merchants." Here was the first English statute dealing directly with marine insurance.

At the time of the passage of this early statute, marine insurance risks were underwritten by individual "moneyed men." Often their business was transacted on the streets and sidewalks. When they would spot another "moneyed man," they would invite him to share the proposed risk – and share the eventual profit. The subscriber would note on the policy the terms of the agreement. Coffee houses were opened in England in the Seventeenth Century – pleasant meeting places for "moneyed men" and for men in all sorts of trade. Maritime news, of course, was among the many items discussed, and much of this discussion eventually centered in one especially popular coffee shop. Here, insurance agreements (policies) were drawn up, proposed risks were shared, and all sorts of shipping deals were closed. And here, too, within a decade, an. organized group of individual underwriters was formed.

It wasn’t long now until underwriters realized that they could offer greater protection through a corporation with a stated capital, rather than as individuals. In 1720, a charter was granted to the London Assurance Corporation and to the Royal Exchange Assurance Corporation, giving them corporate monopolies on ocean marine insurance. In 1824, because of strong opposition, the charter was repealed. Meanwhile, clear across the ocean, a man named John Capson opened an office in Philadelphia for "Public Insurance on Vessels, Goods and Merchandise," and in 1759 another such office was opened in New York City. Individuals or partners ran all such offices until 1794, when Pennsylvania’s General Assembly granted its first formal charter to a recently organized insurance company – a company whose average premium rate, during its first 10 years, reputedly was 12 per cent with a loss ratio exceeding 90 percent!

Ocean marine insurance, over the centuries, has proved an indispensable safeguard against financial disaster at sea – a safeguard whose beginnings mingled with the pungent aroma arising from the coffee cups in London long, long ago.

[Fireman’s Fund Archives: 4-1-3-4-65, 0412]