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tv   Hannah Farber Underwriters of the United States  CSPAN  August 15, 2022 7:16pm-8:24pm EDT

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welcome to -- the trouble begins, brought to you by the mark twain has a museum. i am jodi debruyne, and director of collections at the mark twain house and i'll be your host for the evening. thank you all so much for joining us once again. i think that's all for right now, thanks everybody for coming, our guest today is hannah farber. i'm so excited to talk to you today. your new
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book, the underwriters of the united states. and i have a powerpoint to get going and you might answer this during that but we are a group of history nerds here and insurance is probably even a hard sell for us. so, one, thank you for coming. and two, i'm excited to make insurance fun. because i read your book and it's really interesting. >> all right, we good to go? this is my first book. my baby that just came out two or three weeks ago. and yet, before you all have the chance to back away. let me explain myself a little bit. as i talk about insurance. so, this is my book. there's a couple ways that i would talk about what this book is really about. this is a book about finance in the age of the american founding. not just the american revolution but the decades there between the
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revolution and the war of 1812 especially. where the united states has declared its independence but we're still figuring out what it's about. and it's about how money fits into that story. right, now funnily enough, the piece of this that's most famous as a story of money with alexander hamilton. hamilton is involved with insurance but that's not usually the thing people talk about when they talk about hamilton. but this is a big business in the age of the american founding. this book is about how this powerful, old international business, specifically about marine insurance. the insurance of commercial shipping and a ships. how does business come to terms with a fragile new republic and bets on it. so, insurance is the business of taking risks. the story of my book is how one of the big risks that the insurance business takes is the risk of
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the united states itself. that becomes a story about how economic risk taking and political risk are intertwined. so, i want to talk for about half an hour and then take your questions. i'm happy to go in any direction you want. i'm happy to go with the money people, i'm happy to go with the politics people. or the people who are new to thinking about this all together. i was one of those people, i had no idea when i started my dissertation at uc berkeley that i was going to be writing about insurance. the idea would have appalled me, i thought that i was going to tell a story about swashbuckling adventure on the high seas in the age of the young republic. and i kept coming across reference to insurance. when i looked at what these adventures the shippers in this period we're actually talking about. first i thought that was just really funny, because i thought they're all going to be talking about naval battles on the
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oceans and military risk and political risk. instead, they were like oh god, we've got to write to our insurers about what happened just now. so, this is one of the stories that really compelled me to start writing about this topic, i'll tell it to you now. it's from the memoirs of this really unusual fella named mordecai noah, who was a philadelphia born journalist and a playwright. he's also got lots of big ideas. he's utopian, he thinks that jews should start a new jerusalem in upstate new york. but he's also a staunch supporter of james madison. it's the war of 1812, he's a strong supporter of the republican party at that time and the war. and madison asks him if he wants to be the united states consulate, the commercial ambassador, in tunis, north africa. madison asking because he's jewish and he's
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under the impression that all jews know each other. he asks noah it'll go and mordecai, who does not know any of the jews in tunis says, of course i'll go. that seems like the right fit to me. but anyway he is traveling during the war in 1812 on an american ship bound for france, which was the first leg of his journey to tunis and they get captured by a british frigate in the bay of--. mordecai noah he surprised his capture did not involve any violence or humiliation of the kind that the american sailors often experienced at the hands of their british captors. in fact, he found a british admiral in charge of the frigate was quite nice to him. toured him all over the ship, chatted with, him offered him wine and then the british admirable showed mordecai a list of the american vessels that the british had captured during the past year, this year
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of the war of 1812. the value of these vessels exceeded 18,000 pounds sterling. so, the british saying americans, we've captured an awful lot of your ships. he explains to mordecai noah, who is drinking away happily, that the american merchants calculate erroneously, that if one of their vessels arrives safe to their trading on the continent out of three there will be no loser. if even this was the case, it would be impossible that the aggregate profits of the one american merchant voyage will cover the loss of the two. but it must be known that, in the aggregate, one vessel out of three does not arrive. in other words, the british admiral is saying that he and his countrymen are capturing more than two out of three of the ships that americans are trying to get to the continent of europe to do their trading. or to the caribbean to do their trading. however, it continues the british admiral, if your
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insurance companies do not complain, they will never hear any objections on my part. and under such circumstances, i have no objection to the continuance of the war. so, again, at first i just thought this was really funny that this admiral who is engaged in all these daring wartime adventures is actually calculating the progress of the war in terms of insurance. that he is saying how many ships are getting through, how much money are the americans losing. and using that to determine who is winning or losing the war. then, i thought about this further and i thought, he's actually saying something even deeper. which is that essentially the american insurance companies who are deciding whether the war will continue. they have mistakenly calculated that it's worth it to ensure american ventures to france. as long as they're doing that, they're the ones who are paying so i have no objections to the
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continuation of the war. i thought that was very interesting. and it led me toward a story in which insurance is a really highly capitalized transnational business that underpins all of the chaos of the age of revolution, the napoleonic wars. i started to see references to insurance everywhere. you can see insurance in books like, on the left here, this boston directory that lists the names and addresses and institutions of boston. right here at the beginning here, page six, right after this city directory lists the banks of boston and how much they're worth it goes on right away to list the incorporated insurance companies of boston. and the amount of capital that these
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insurance companies have. it struck me from the beginning, even when i didn't really know they are doing. if you look on the right, you'll see a list of premiums and insurance rates that were published in city newspapers. these are the rates that american insurers were charging to american merchants for voyages to places all around the world. so, now that americans are not subject to the british empire they're not subject to british restrictions. in theory, in political terms, the whole world lies open to them. at least that they can get to by hook or by crook. but this westerly is is an assessment of the safety of american merchant ships in the world. because one of the things you learned
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swiftly when you start to research insurance in this period is that most ships don't sink. most staff gets where it's going under normal circumstances. but during the napoleonic wars, the french revolution wars, the wars of the 18th century, most risk is political risk. most of the risk of a merchant voyage has to do with, during wartime, the risk of being captured. and war is a lot of the time. if there isn't war, there is almost war, there is anxiety about war, there is local disturbances. it is local people you have to bribe. there's a lot of political mess that americans have to navigate when they're
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sending ships around the world. so, this list of premiums is telling you something about your own government if you're an american citizen. it's telling you how safe is this country making a merchant fleet in the world. so, what are these insurers doing, really? how did they get to be so many of them? like i, said this book is a war story. the big growth in the united states in transect, or especially marine insurance, which is most of the insurance in the 17 90s, there starts to be some fire insurance. much, later the source to be some life insurance. the big growth in the u.s. marine insurance sector comes during the french revolutionary and napoleonic wars, which raged around the world between the early 17 90s and 1815. so, france declares war on the rest of europe and vice versa. the united states is not directly involved as a combatant for most of this time. the words pose an existential threat to the united states and its government, which is almost entirely dependent on the taxation of imported goods for the money that it needs to run itself. united states government needs imports and exports to continue. the wars offer enormous opportunities for american traders who are
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willing to take high risk, high reward ventures to ports that have been starved by war, ports that have been blockaded, to ports that warring powers are keeping each other out of or ports that suddenly need a lot of new supplies. like grain or weapons for the fighting of wars. these are dangerous ventures, as mordecai noah's captain knew all too well. it's all too easy to get captured in that environment. and the states has virtually no formal naval defense for this period. but it does, again, have this outsized merchant fleet that is poised to take advantage of this high risk, high reward climate. so, the growing sector of marine insurance, and these are mostly merchants by the, way they have to be, only merchants understand this business. coordinating a growing sector of ventures led by a group of export margins, they help american merchants pull and organize a risk and guide them through this landscape. beginning in the 17 90s, american merchants form large numbers of insurance companies to pull and manage their risks. it's not just a story of formal incorporations,
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there are also incorporated trans brokerages, there is informal, private insurance that takes place around this time as well. the really striking development is the growth of the first american insurance companies. so, how does insurance actually work? this is sometimes, people have about an hour of questions on this, i'd be happy to entertain them afterwards. the people in my book really only recognize marine insurance and fire insurance. life insurance has started in london but it doesn't register so much for them. if anything, they see life insurance as a subset of marine insurance. like a marine insurance company would issue an occasional policy on a sailors life as part of what they do. but marine insurance is this old and deeply international business, it is controlled by merchants themselves, it is a fundamentally international business. for this reason, you don't get the whole story when
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you just look at the nation's laws about the practice of insurance. the real way to understand it is through the books that merchants published and circulated to explain merchant practice to each other. so, one thing to understand about insurance is that it's a means for some merchants to control one another's behavior. because, if you've ever had in a trance policy you understand that, if you didn't behave in a particular way, oftentimes, your insurance company will not pay out to you on your policy. so, this is true in the age of revolution as well. the insurer of a merchant voyage can force that merchant to adhere to the terms of the policy. but the specific terms of his policy and the broader rules and customs by which insurance is set to operate. these are known as the laws of merchants. they are not, formerly speaking, laws. they don't belong to any particular country. if you look at these books, they contain a lot of things that are not, laws they tell you about
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different ports and different ways of dealing with money. but they tell you what merchants are generally expected to do. insurers are sort of these managers of the laws of merchants. at the same time, the insurer is also at the mercy, a bit, of his merchant customers. because insurers are traditionally, from medieval times, sort of expected to behave as if they themselves are part of the ship, part of the voyage. in other words, they're also expected to know generally how this incredibly complicated business works. one of the dicta of the laws of merchants is that the merchant is not obligated to tell the insurer anything that the insurer is supposed to already know. now what does this mean? well, you've got to look in the book to find out. there's a long conversation about it. but fundamentally, this is a deeply customary practice that is
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meant manage the uncertainties of doing business across long distances, political boundaries, where merchant cargo is maybe operating in very different political landscapes. that is a grain of truth to this idea that insurance works the same way in lots of different places and times. so, what happens when -- this was one of the quotes about how the insurance business works. one of these english merchants insists that the law of merchants has always been the same everywhere, constant and permanent, concurring with the law of nations in all countries. like yeah, yeah, yeah, he just doesn't want people to interfere with the merchants selling each other insurance. but it becomes a self availing prophesy. the more the insurers say that their business is complicated and imperfect in the same at all places and, times the more it comes to be
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true. what happens when this business meets the united states? i'm skipping the american revolution for now, but i'm happy to go back to it if there are questions. there have been american insurance brokerages since the mid 18th century in philadelphia especially, and boston. they tend to surge in number during wartime, when merchants are interested in aquiring assurance locally, which they find to be more convenient for various reasons. the formation of corporations is mostly barred to american colonists. that's different after the revolution. now, first corporations are sort of taboo, they remind people of monopolies, the east india company. but this taboo starts to break down during the french revolutionary wars. there is suddenly a surge in demand for insurance among american merchants at home. they form their own insurance companies, they also form their own brokerages. so, merchants are
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suddenly drawing on this old body of mercantile customary knowledge. and they're dropping these new businesses and in the united states within the form of the corporation. and they grow rapidly. there is a picture of an insurance policy, happy to come back to it. this is some of the work i did for this, book i tried to find out how much capital is held by american insurance companies exactly. i compare that amount of capital to the amount held by american banks. banking being the other really big, really early financialized business in the united states. insurrance is never as big a business as banking. this is marine and fire together. but it, respectively, keeps pace with american banking. this is the number of insurance companies and banks. the parallels are even more striking and how parallel these numbers are. but insurance companies have never attracted the same amount of public political attention that banks have. i can talk about that later, if you're interested.
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this new cohort of american insurers, who are in constant conversation with their overseas counterparts, have this mindset that they are genuinely, staggeringly complex and lucrative business belongs to themselves and could not really be managed or regulated by the united states. there is some sense to this. the insurance business is a very, very complicated one. enters insurrers simply know things about how the business operates, about how merchants work, but how global commerce is going. they are news addicts, they are deeply and carefully listening to their international news networks about what's going on overseas. they know things that the first american politicians just don't know. they know things that american juries don't know. during the american revolution, there is this populist movement that says that regular juries should try to adjudicate insurance law
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cases and law suits of insurance. and they just can't, they can't do it. they try to get a regular jury to understand what a merchant is doing about why this insurance company should -- and they can't do, it is a nightmare, we have to stop. legislators try to get involved too and they don't do a good job, they have to ask insurers how it is that the business works to regulate it. and again, insurers are just these consummate information gatherers and managers of global affairs. when the french revolutionary wars begin, there's just not that much american federal government. the united states doesn't even really know how many of its ships have been captured by foreign powers. they ask insurance brokers and corporations to correspond with them, to tell what kind of losses americans have suffered. for the u.s. government, it's an extremely important strategic piece of information. so, what do insurance companies do with all of this capital
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that they have? all this political influence? for the most part, they do things that support the united states. they take american risks in a lot of different senses. so, american insurers buy federal securities. that is to say they buy u.s. government debt. they are certainly the largest group of corporations that are holding american bonds. so, they're supporting those bonds value and making them seem like they're good and reliable investments. by underwriting u.s. trade. and doing their business, they are making a bet on american commerce. they're wagering that, in spite of the raging napoleonic wars, the american merchant fleet on balance be profitable. they do provide the fledgling u.s. government with information about the safety of its merchants in the world. information that was crucial for its policy making. as by
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supporting american overseas commerce they allow the federal government to collect its most critical stream of revenue, which is customs. so, the american underwriters of how their loyalty to the country and, setting aside some significant lucrative gray areas in the law, they generally follow the law. they generally demand that their merchant customers do the same. i say generally, there are some important places here where insurers are sometimes dodging the law or sometimes, when the government isn't equipped to say what the law is, marine insurers are the ones who determined what that law should be. i can talk about that later. i don't think we should under-account the importance of the ways in which a rich business avowing its loyalty to
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the country has a sort of political relations effect. one of the things i talk about is what happens when the government charters a corporation. so, insurance companies are chartered by the states, they're incorporated by the states. the states give them charters so they can legally be corporations. and that, is in itself a deal that the state governments are making with the merchants. the deal is that the insurers get their corporation, which allows them to accumulate capital in a variety of convenient ways and pass bylaws that affect their own members, et cetera, et cetera. but they're getting from the united states government is also the sort of, what's the word, endorsement from the government. pence says that they are safe and secure we. so, when the insurers are doing all these good things on behalf of the american merchant
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fleet, and the way they're sort of repaying this bet that state governments have made on them. in general, american insurers bets pay off. they make huge amounts of money during this uncertain period of the napoleonic wars. they make money off the federal bonds that they invested in. they get legal and political security from their charterers. the legal regime is sort of formed in a way that suits their interests and, under a regime of relatively low taxation, american owned insurers are able to make and keep a very large sums of money. so, insurers shoulder some of the republic's risks and receive, in turn, a lot of money and national infrastructure that, to a significant, degree suits their interests. and there, is of course, some overlap. i'm not saying the merchants on the government are totally separate groups. there's many people who are insurance company leaders
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or big investors who are themselves in politics. but i'm interested in, really, is on a theoretical level how these systems of governance by state and governance by insurance interact with one another. so, here's some charts i give you about the dividends of insurance companies as percentage of share value. they actually issue dividends every six months, which is pretty wild. and their dividends fluctuate pretty wildly through these politically unsettled period. insurance companies do the best and everybody thinks they are might to be might a be about to be a war but there is one yet. and they do the worst at the end of wars when they're paying out wartime indemnifications but they are no longer able to charge wartime rates. so, out there dividends fluctuate a lot. much more than the dividends of american banks, which are still a pretty darn impressive but stick to a much more stable schedule., so insurance
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companies themselves are institutions that manage risk. investing of them offer some risk by, in general, they don't go bankrupt. they generally do really really well through this period and they accumulate this huge amount of money that they then invest in the united states. so, i'm sort of open-ended with where we go from here, but there are a lot of other ways that insurance companies secure themselves. i talked about incorporation as a sort of deal with the state. and trans companies and brokerages also collaborate really extensively with one another. they exchange rates, they don't tend to compete that much. they realize pretty quickly that they do better if they standardize their rates with one another. they are, after all, mostly experienced merchants themselves with shared interests. and they share information with one another. so, they're creating the shared opinion on how
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dangerous the world is for american merchants. they collaborate, oftentimes on expensive shipments of goods that will be insured by multiple companies and brokers. and that ship might get captured by, say, one of those british frigates, and then the insurance companies and brokers collaborate to try to press their case in court to try to say that the capture made by the british frigate was illegitimate and that the british government should return the goods to their merchant customers. or if the merchant surrendered to guns to the ensure, then the insurer gets whatever it reclaims., so insurers are active in foreign courts, especially in british courts. trying to get property returned to americans through a legal process. trans companies are really close relationships with banks, this is something that has been really under studied. insurance companies have some real similarities
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with banks and how they operate. the bank is allowed to make loans to a merchant who offers a certain kind of note of financial concern, meant an iou as collateral. an insurance company is allowed to learn to a merchant who offers an incoming ship as collateral. it's one of their side businesses. it provides, that if the ship sinks, they don't get the money back. so, insurance is like banking, there's also ways that banking is like insurance. if we have time at the end of the top will be happy to talk about that more. president significantly, insurance companies and banks are often founded by the same people they have these closely connected back ends. insurance companies need somewhere to stash their money so that it's accessible to pay off claims. they also need their money to make money. when they do they invested in federal securities,
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they invested in banks. as i, said there's also a cultural aspect to this project. so, one of the things that insurance companies like to do is to present themselves as boring and an interesting. as a wonderful story near the end of this book about how this works. the story is this. so, this is a 2:25, this is quite late in my story. but this is a year when a lot of people are trying to push incorporation through the new york state legislature, they're sort of a bubble, an economic bubble of incorporations. people think they can get rich quick by starting companies. now, some legislators are on board with this. some legislators are suspicious, thinking that new york doesn't really need all of these banks and insurance companies. so, i have this wonderful set of letters between two merchant brothers. one of them is manning the business in manhattan, the other one goes up to albany to try to get the corporation across. they don't send the
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manhattan paper pusher to the state legislature, they send the sailor. they send the sea captain. what he literally writes to his brother is at the way he's making headway among these suspicious state legislators who think this is all just a cash grab of some kind, he says he passes himself off as a guileless seafaring gentleman. somebody who couldn't possibly know anything about incorporating corporations just for the purpose of rapidly accumulating other people's money. no, no, i'm just a sailor. so, he literally says when i told him i was a sailor and nothing of the banking concerns, they politely excused me. he literally says he told them old sea stories, they get bored and he waits in the corner and listens for the gossip or the legislators talk about who's going to vote for what. this
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guy, the prospective insurance company founder separates himself from the highflying -- which insurrance is totally involved. much more than thanking, it's able to pass itself off as innocuous because it's connected to the real world of commercial shipping that doesn't sound like a bubbly kind of thing to legislators. they do succeed the morgan brothers -- their incorporation again. insurance companies strategies come across as very complicated, sophisticated, important, assessing horrible risk. when americans are fighting about
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whether they should embark on global commerce in 1807, the british and french are starting to kick off american merchant ships more and more. a lot of the insurers are saying that they do not want an embargo. they think that they can manage and assess the risk to american ships in the world. they don't want the government to interfere. this legislator, samuel smith, says don't shut down -- insurance companies will regulate the risk of cover switch judgment and precision. i would confide to them the commerce of our country, and chaperoned by an embargo -- don't do it through the government. the insurance companies are the real regulators. i like this quote because today, a lot of times, we talk in terms of the government versus the free market. what is clear here is samuel smith is talking about the real alternative to
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legislation in not nothing. but insurers as governors of american -- insurance companies. interesting how it echoes the point i gave you at the beginning from six years later. the british frigate admiral going year insurance companies, as long as your insurance companies don't mind, -- -- i'm okay with the war of 1812. here is samuel smith, an american merchant, insurance companies will regulate the risk of -- judgment and precision. they are governing american commerce. they don't need the state to do it. this fascinating high political stakes to that comment. insurance companies also evade the law. i said that they really vocally pronounced that they obey united states law and indeed enforce it with respect to their merchant customers. there are plenty of insurance policies, especially during the war of 1812, which merchants generally do not want. they
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want to be able to trade wherever they want to trade. they use all kinds of workarounds that their complex business allows them to use. when i put up on this slide here is an insurance policy that is made out to mr.'s jonathan -- and company of boston as agents. okay. this policy is employing this fig leaf of saying that jonathan dore is not the one who's being insured. who is being insured? the squiggly line gives it away. it's the agents who need this insurance policy. all of which is currently legal -- and illegal trading voyage for citizens of the united states. this swedish vessel here. this is not a swedish vessel. this is blatant smuggling. insurers are facilitating the evasion of the law. all right. a final
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ambiguity here is who is in charge. is marine insurance a business under u.s. law? if so, why? if not, why not? sounds like one of the essay questions i just assigned to my undergrad for the end of this term. this is a particular puzzle because insurance is itself a form of governance in the age of revolution insurance is a merchant self governance. it's an imperfect one that is threaded through the institutions of the state itself. it's helping to make the state -- shaping the terms, according to which the state governs the business, which it still cannot fully govern because insurance is so wealthy, so complicated, and so international in nature. i left
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a couple things up on the slide we can talk about in a second. one of my key contemporary conclusions that i offer in this book is that it is still true the governments are always in the business of risk management. whether it's climate change, health insurance today. whenever you change the way risk is handled, you are changing the way the state itself works. how to talk about that more extensively as well. there's a few things we can talk about. wax seals and silver chalices. the material culture of insurance. urban landscapes in architecture. the american revolution. other things in this book, which i hope you will buy for all your friends in the insurance industry for christmas. privateers and algerian coursera. slave trade insurance and contemporary connections. i will leave it there for now. i understand that jen is gonna take questions for us. thanks again, thanks for having me. the green chat box -- let's chat more about insurance. >>
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yeah. thank you so much. that was great. i have personally read a book, i have, promise. it is really fascinating. i said it at the beginning, like, i know nothing about insurance. but i'm a history nerd. it was so cool to read this book and look at things that we did learn about in school and do know about american history and add this whole other layer of these people making up the rules. it was great. one of our questions in the question answer is i want a signed copy of the book. i'm happy to say, you can get it through the mark twain gift shop signed by hanna starting tomorrow. the link is working at the moment. i will make sure they get sent out to everybody tonight, the link to buy the book is available through the mark twain gift shop. you are supporting both hannah and us at the same time. all signed. richard asked that question. i hope you buy the
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book tomorrow. we do have a few other questions already. let us start with the one of the top. it says, were these mutual companies or stock companies? oops, it just moved on me. if stock i'm pennies, what kind of people invested in them? >> let me back up. the difference between mutual companies and stock companies, a mutual insurance company is not about the whole thing or accumulating capital. it's supposed to hold just enough money for a group of people to cover any potential losses. this is a form that is occasionally successful, especially with fire insurance companies. this is not the model that marine insurance companies operate from. even some fire insurance companies and marine and fire
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start mutual, call themselves mutual companies, but actually convert to stock companies, which is to say companies the privilege of which is the return of givens to their shareholders. marine insurance is a much bigger business than fire insurance from the start. mutual does not really work for it. it's a big cash business because you might have a voyage that is worth $1, 000, or $2,000 or more. your premium can easily be a couple hundred dollars. fire insurance policy, the policy might be on $1, 000, but you might pay only two or $3 a year. would everybody hates about the mutual companies is like, sometimes they run out of money because they hold so little. and then they come back, the company has to come back to the policyholders and be like, you know, we need more. the policyholders gets so mad. they are just livid. as you can imagine. a lot more money for me. it tends to be groups of
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merchants informally playing their resources and formally through the corporation, who holds stocks. often, other merchants, there is this wonderful quote from one of the company secretaries who works and boston in the early 18 hundreds. he's basically like, every merchant in boston is involved in the insurance company. it's another way for them to buffer the risk. other people who have, and people whose money is tied up in this, they obviously don't have so much money to tie up in commercial affairs or corporate shares. i have also seen letters like alexander hamilton writes to a wealthy widow at some point. she's like, what should i invest in? he says, you should invest in federal securities, insurance company shares. this combination that's going to make you profitable and safe. women invest in sort
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of the way to -- it doesn't require too much direct management. especially the port city people who are already handling this form of wealth. >> great. all right, so, on that note, i know alexander hamilton was not a president but where any of the founding fathers involved in the insurance venture? >> very much so. especially robert morris is a merchant underwriter, he comes up in my book a fair amount. because he is trying to finance the american revolutionary war. when he's doing, that he is an underwriter, he has a partner and he underwrites with his partner incorporated. but he knows that complicated international business. he also, during the revolutionary war, in contemporary terms is trying to get u.s. acuity's
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underwritten by amsterdam financiers. in other words, he wants to sell the amsterdam financiers a big chunk of u.s. debt and make them take the risk of whether that debt sells to the amsterdam buyers or not. so, he's literally getting the united states underwritten. and i don't think he doesn't after his experience with the insurance business. alexander hamilton is an insurance company lawyer. in hamilton, an act to, when he comes out in his fancy green blazer because he's made a lot of money here, a lot of that money is through insurance law. which is this big early -- this is where early lawyers make a lot of money. people do land deals but a lot of speculation. it's like
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the merchants who are mustering cash and it's just obvious that insurance lawsuits, insurance businesses, these are the institutions that have money in the early united states. they're doing big deals with each, other they have overseas connection is that they're drawing on for wealth. hamilton is one. and then the third name he would probably knows daniel webster, who is known for his much later political work that links has big pile of money, also as an insurance lawyer. not just as an insurance lawyer but working on behalf of certain claims against the spanish government for their illegitimate captures of americans during the napoleonic wars. so, that's how webster makes his big pile of money, through his political rise. >> the other name that i would like you to briefly mention on for all of our connecticut people is silas deane. i don't remember the relationship. >> right, so, american privateers actually have their own insurance outfits. it's one way of investing at each other's voyages. you see these insurance rates. so, a ship might be a privateer ship that's planning on making money by capturing others, it might
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be a merchant ship with a letter of mark and some guns, which means as mostly going on a merchant voyage but it can chase foreigners if it comes across some of the juicy ones. and during the american revolutionary war, yeah, these privateers are ensuring privateering voyages which is one form of investing in them. if you're underwriting a privateering voyage, that's one way of making money and fighting the british at the same time. >> awesome. we have so many questions. we'll probably, we won't be able to get to all of them. we'll get to as many as we can. we'll send them to hannah and put them in the chat for after this ends. obviously everybody is interested, which is great. the next one has a couple votes
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in our question and answer forum. how did hartford become insurance capital of the united states? >> so, i am an expert in the really early part of this. hartford being on a river. lots and lots of early new england towns on rivers and especially in massachusetts, but also in connecticut. if you count on the river, you're going to possibly have a little insurance brokerage for once the age of incorporaing begins. you might have a bigger corporation or corporation that is next to your local bank, which is, again, one way of the higher stratum of early local merchants managed to, are choosing to pool and manage their risks and make money at the same time. so, a lot of times these corporations depend on local knowledge as they get started.
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my understanding is that hartford becomes a big insurance capital later in the 19th century. and so first by the -- so industrialization really fuels the fire insurance business when big corporations start needing fire insurance and paying a lot for it. insurance becomes big money that way. life insurance becomes big business in the middle of the 19th century along with urbanization. when more people are living lives where they have these desk jobs and sort of one of these like protestants and one good thing you can do for your family if you're a good upstanding husband is to make sure your family will be provided for in terms of money after if you prematurely pass. that's when cities like hartford start becoming prominent
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insurance for insurance when it becomes a business more for the public. >> are there any contemporary comparisons between maritime and commercial aviation insurance? >> the insurance today that is most -- okay. the story that is easiest to see is the way contemporary insurance becomes domesticated and becomes the story of state-regulated corporations and the aflac duck and the geico and domesticated business and my understanding is that the marine insurance business is actually kind of old-fashioned in the way that it operates and has some similarities to how it functioned a long time ago.
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my guess is that aviation would work this way, as well. there are still problems like pirates and international political crises that befall commercial shippers. if you go to lloyd's you can still see they have a book and they handwrite in this book and ring a bell when there is a ship wreck. it's really old-fashioned. but it's actually and it's old fashionness it makes it less like the business in my book because the business in my book is so political and it's so up to date with the political events of its own time. so it's actually the -- like my hypothesis and not allowed to speculate because i'm a historian. but the insurance business, which is transnational, it's big, it's shady, it's huge and it's very political that insure against things like wars and
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global catastrophes and political changes. that's most like the sort of wildly political and up to date insurance of the age of revolution. some things about shipping haven't changed that much. and a lot of cases, you know, political risk always seems so of the moment that you're in but the fact of political risk is something that has never gone away. even when contemporary american insurance companies like to make it seem like they have nothing to do with the world of politics. the political world is the framework in which they operate. >> awesome. so, related to that, there's a question and then i have a comment related to the question before you answer. the question is did you find insurance company executives later went into politics and you just mentioned politics, as well. one thing i really enjoyed reading in your book was this kind of dichotomy of being a political entity and making its
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own laws but yet we're of the people and we're like, you know, those kinds of things. and i love this politic aspect. so, do you want to talk about executives that went into politics or politics before they went into the insurance? >> these people are a lot of schemers in the age of the american founding who are really interested in politics and they're really interested in business. and who actually see politics and business as more interconnected endeavors than maybe we would see today. so, a long forgotten guy named samuel bloget jr. who is born in new england and moves to philadelphia and part of the founding of the joint stock american insurance company in the 1790s and he has this radical idea that it's a thing. it was a thing at the time. but he's both very like
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republican and into self-governance and so into corporations. he thinks that corporations are a form of governance and should be like these tools that americans use to rinforce their own civic fabric. because if your co-financial operators in adventure, then you are, you know, you're going to have a lot more at stake in wanting your countrymen to succeed even then if you're just living in the same town. >> right. >> the whole world, the whole country should be connected to every town and everybody should be invested in it. it almost comes full circle to being a socialist project. if everybody is like got all their wealth shared in the same venture, it's almost like so private property and almost no private property at all. there are like i said hamilton
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webster and morris and legislators who nobody well known today who are in the insurance business and, again, encourage their fellow citizens or their fellow citizens to think in terms of, to think of politics in terms of losses and indemnifications so like defending britain and one of these legislators from massachusetts who is an insurance company founder says, you know, okay, he's like, yeah, the age of revolution. it's pretty crazy. call it that but american ships are getting taken by everybody. the british, the french, the pirates and the danish but the british do capture a lot of our ships but also the best indemnifiers. when they do wrong, they compensate us. trying to get americans not to think of the jeffersonian and
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think more in terms of the bottom line in terms of their political mood. they're not able to stop the environment and stop the war of 1812, but neither of those things actually last that long and it's even a less period of time that commerce really comes to a halt. before long merchants and their insurers find the work arounds to start trading again. that is what infuses politics as far as i'm concerned. >> great. so, this one says to the acchew wearial data, the insurance companies use to determine the rates in early america. give us an idea of the relative dangers of ocean travel. for example, what percentage of ocean voyages did the early insurers expect to end up wrecked by storm or pirate? >> great question. so, generally they don't operate
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in an acchuarial way. not tables of likely amounts of losses and they're generally not calculating. the accumulated information according to which they operate, they can do business is sort of the laws of merchants, those merchant handbooks. what is likely to happen. their general sense of the danger and to a lesser extent the captain. that's sort of a reputational thing. but generally speaking the risk of just an ocean voyage like what they would charge for one way across the atlantic is like 1% to 2%. it's quite low durs peacetime. the problem is most of the time it's not peace. a little more like if you're going in hurricane season to the caribbean and you can see that go up like 4% or something like
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that. those rates don't fluctuate so much and you can find them because some insurers separate out their books because you can get risks on risks of the seas or get an insurance policy against all risks. all risks include capture, political goings on and it means you hit a rock, hurricane, stuff like that. that tends to be quite low and consistent just a couple and then the political stuff that goes like that and i put some of those in the book. suddenly something happens and rates spike to certain destinations and an unlucky guy who needs it at that time and the insurers gather more data points and they settle the rates back down. >> awesome. corporations considered people by insurers/merchants at this early date? so the answer is yes but not in
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a very important way. the handbooks of this time period are, yeah, the corporation is a person. they need this in a very limited, functional way under law. in terms of how the company can act in a court. in other words, if you had a murchert partnership and you had to act as two people in a court of law and it's 18th century and people die a lot. that could be really inconvenient because suddenly you're in an estate conflict and absolute nightmares under british laws. there's the cat. >> there she is. i told you she would make an appearance. >> okay. so what was i talking about? corporate. the thing is that being a person under domestic law doesn't really get you that many rights at this time. so, like the states today i feel like of corporate personal hood
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are higher because there is a greater and more extensive discourse of rights in a more modern sense in a more material sense. like back then, you know, the rights of an englishman and free speech. it just wasn't so incredibly relevant to the life of a corporation. so, yeah, legally a person. but it's not, that's not an interesting question to them at the time the way it is today kind of because the government changed its relationship to people. >> awesome. all right. so, this one says another example of insurance companies creating change in durham, north carolina, had wall street that started with the 1898 founding of nc mutual to provide insurance to african-americans who could not get covered from the insurance companies. in just a few years the largest black-owned business in the country. now, i know in your book you talk about the slave trade and the insurance of that and
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everything like that. did this come up at all during your research? >> no, i sort of veer off in the mid 19th century. so, yeah, unfortunately, that's not so much the world that i knew about. there are not enough capital holding black port city americans to have their own corporations or anything like that. it's probably likely that at some point there are investors. there aren't that many women in my book that are just looking at this one particular manifestation of this transnational system with the people whose names are on their paperwork and sort of formal owners of this information. it's a particular group of port city elites. a lot of the people who come in after the loyalists went away during the american revolution. sort of this new generation of elite that comes to occupy their economic niches oftentimes from
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like outlying towns and they come into boston and come into new york and philadelphia and then they set up shop. and they're the people who found like historical societies and get papers to them and places like the connecticut historical society have a lot of these early insurance papers. a ton of investing out there. the corporate records actually become harder to find in the mid 19th century. corporations whose lives are a little bit more chaotic and they're not tied to the lives of founding elites in the same way. >> all right. we have two more. at what point did insurance and banking joint up in the national and then state banks? also, love to hear more about risk insurance changes. how risk insurance changes the state. >> so, banks -- so insurance
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companies as state chartered businesses their lives are very intertwined with state banks. i think i mentioned that insurance companies need places to put their money so they put them in their friendly local bank and they buy shares in their friendly local bank so these numbers of charters often track really closely together and often the same guy will like have a hand in, you know, both local corporations at the beginning there are often, they are often political allies that found the same kinds of corporations. what is interesting is how corporations lose their flavor because states find it easier and everybody sort of just decides that proliferation and banks and insurance companies are in their best interest. insurance companies invest in banks and banks do a lot of services for insurance companies. they like, so if a merchant
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essentially pays for an insurance policy with an iou and then -- which he has to pay once the ship comes in and legally binding iou and the insurance company gets it at the bank and the bank can sort of service that note as necessary. like if the merchant needs to renew it and can't pay it yet but they can manage that for it, they handle the interest payments on whatever note it is or even insurance company can say basically sell the note to the bank and say put the cash in our account. financial services is one thing. banks also do this thing and this is very in the weeds. here we are. i'm good with it. banks have to decide what they're going to accept as collateral when they give people loans. certain kinds of merchant paper is acceptable and also decide to prop up the value of insurance company share we will accept it at face value as collateral for
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the loan we're going to give you. they nest together politically. the second question about risk insurance. >> i would also love to hear more about risk, how risk insurance changed the state. i don't -- >> yeah, so, if a person wants to clarify the question a little bit more. but one thing that insurance people do is just, for example, is help the state decide whether commercial property is or is not american. just sort of a funky question to be asking. but in an age of war fare, there's a lot of intricate international law about what property is allowed to be confiscated or not. an enemy's property or a friend's property on an enemy's ship or like a friend's property but it's weapons and it's going to an enemy or you're like
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running a blockade for something. but you have to think about this in a world where american commerce is crucial to the country's financial success. so these questions about what is an american property or not is really important. how do you know what's american or not? we think of this in terms of citizens, but stuff is also like more important at this time. stuff is worth a lot more than people are. so, how do you decide. essentially the american government when it's trying to decide if americans are breaking laws or not, they go with whatever the insurance company says because they're like, all right, if the insurance company thinks this is legit enough to do a payout, then the american probably wasn't smuggling because the insurance company probably wouldn't put up with doing anything illegal. so, this round about way the insurance company is actually incredibly influential in determining what is american and what isn't. that's a real good question. >> awesome. so, one last question in the q&a
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and then we'll let you go. but it says the british, most of the british marine insurers are mutual protection and associations. if most american carriers were stock companies, is there a reason you file for the difference? >> yes. there's a british law in 1720 that says there's only two companies that are allowed to sell insurance as joint stock companies. the royal exchange assurance and the london insurance company. everybody has work arounds and all the marine mostly moves to lloyd's of london which is like this clearing house for independent operators. the united states doesn't have such a law. again, the united states moves towards the system where the state governments accommodate a lot of corporations. and in the case of banks in the
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northeast, this tax on banking capital funds like the majority of state government operations for a lot of the 19th century. they don't get around to taxing insurance company capital for like a generation after they start taxing bank capital. insurance company less capital than banks but hugely important just to the quietness through which it's handled. and the corporate profits, again, they fluctuate a lot but are really, really significant and attract a lot less political attention than banking because people are sort of familiar with the rhetoric of the sinister monopoly bank but nobody knows what an insurance company does. >> that's still true, right? >> still true today which is why perhaps other people would like to think about this topic today. >> awesome. thank you so much, hannah. i can only encourage everybody in t
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