Around the same time, Queen Elizabeth granted a monopoly on the writing of assurance policies to Richard Candeler, who led the newly-created Office of Assurances. The Office introduced a system of fees – with the Office receiving a fixed percentage per £ insured 8 – for the production of physical written policies. Both through the creation of the Office and Court of Assurances, and the receipt of customs duties from insurers, the Privy Council in the 16th century – as approved by the monarch – cemented the role of the state in exercising a judicial function and creating an environment of policy registration and anti-fraud conducive to commerce. So, as I see it, this first phase of engagement between the British state and the insurance sector was effectively a trade: dispute resolution services were provided by the state, and insurers contributed some revenue to it in return. Indeed, in the early stages this revenue went directly to Candeler himself. Despite the tight state controls around who could write insurance, the nature of risks being underwritten was granted little oversight – so much so that, for many, the practice of insurance became synonymous with gambling in the 18th century. Perhaps – and I say this with some trepidation here at Lloyd’s – some of the most egregious examples of such behaviour were evident in the marine market. By this point, London had emerged as a centre of excellence in marine risks, due partly to its strategic location on famous shipping routes.
Bottomry, it turns out, was a type of contract whereby a lender would, for a fee, put up money (either in the form of a loan or sometimes a joint stake in the stock) for the purpose of advancing trade. This was on the understanding that “the borrower should, in consideration of a high rate of interest, be freed from liability in the event of certain accidents happening, e.g. failure of goods to arrive at their intended destination” 2. This looks to me rather like a Babylonian version of today’s catastrophe bond. 1  Plantin and Rochet (2007). See also Thoyts (2010). 2  Clayton (1971). See also, Bernstein (1996). 2  BIS central bankers’ speeches  The practice of bottomry flourished due to the proximity of another group of great traders – the Phoenicians, who adapted the basic concept to support trade expansion on the Greek coastline during the 10th and 9th centuries B.C., and to the increasing domination in the Aegean Sea after 800 B.C. of Greek traders who needed indemnity against their cargo. Hop westward across the Mediterranean Sea to ancient Rome, and citizens were paying subscriptions to so-called “burial societies” to cover the cost of expenses associated with their death – a kind of latter-day funeral insurance. This activity evolved such that by the second century A.D. it became common practice instead to pay the relatives of the deceased person a lump sum (the funeraticium), provided their subscription was not in arrears and the deceased had not committed suicide 3.