The idea for this blog emerged during one of the many phone conversations I have with Thierry Weishaupt, Director of China Operations, at ICMIF member Groupe VYV (France). Sometimes the line is crystal clear in spite of the 10,408,58 km that separate his Beijing office from mine in Brussels and sometimes it is somewhat broken when I’m travelling in a mountainous terrain. But the topic of our calls never varies. It’s always about mutuality, its raison d’être, its roots, and its inevitable transformation.
So the other day, Thierry called and we started discussing the prospect of a ‘four hands’ blog which would draw lessons from our combined experiences of mutual insurance and how it needs to evolve if it is to be successful in China.
Why aren’t mutual insurers spread evenly across the globe? What are the reasons behind their absence in countries where they used to exist? Why is the co-existence of both mutual and cooperative insurers so exceptional?
It then dawned on us that unearthing the thread of mutualism across the globe could constitute a first step and may provide us with a practical tool for spreading mutual insurance where it currently does not exist.
The article below thus constitutes the first chapter of what we hope will become a series of ICMIF blogs on insurance the mutual and cooperative way, which hopefully can be achieved with some support from you , either by sending us written contributions or any bibliographical references to the history of mutual insurance that you may have.
In Europe, our societies have been built on the philosophical idea of collective insurance, solidarity and the mutualisation of risks. But how current is this perception today? A quick review of recent publications reminds us of the very broad stages of the history of insurance, sometimes mutual, which I will try to document below.
Marine insurance is generally regarded as one of the earliest forms of mutual insurance. While it is well known that Edward Lloyd formalised the writing of marine insurance in 1687 at Lloyd’s Coffee House, written documents acknowledging the underwriting of the first policy to cover risks deriving from cargo ships and the goods that they carried date as far back as the 14th century.
At that time, personal lines of insurance as we know them today had no place in society. Solidarity and social cohesion were intrinsically part of the social structure. Family ties, neighbourhood connections and social hierarchy ruled people’s relationships.
In the 17th century, natural family bonds were dwindling, challenged by scholars and economists who described society as a web of voluntary contractual bonds and social connections.
At the same time, for scholars and mathematicians, the probability concept became a serious topic of debate and with it, the ambition to apply it to problems such as fair odds in games of chance and equitable pricing for annuities and life insurance policies. Pascal, Bernoulli, Leibniz and Huygens were instrumental in the pursuit of ideas concerning pricing the protection of individuals’ lives.
These significant steps for actuarial science should not let us forget widespread resistance to the idea that a person’s life could be priced and insured. This was still at odds with the social, moral and divine prescriptions of society at that time. For the majority of the population, many ethical issues were linked to the concept of insurance, which was still perceived as favouring negligent or even immoral behaviour.
The strongest apprehensions were rooted in religious beliefs, according to historians such as Ian Hacking, who point to the failure of Leibniz’s attempts to establish municipal fire insurance in Hannover despite him being ‘the philosophical godfather of Prussian official statistics’.
These strong reservations in continental Europe did not prevent mutual insurance companies from being established in England in the aftermath of the Great Fire of London in 1666. And, at the same time, on the other side of the Atlantic, early forms of fire insurance started to appear in the USA, initiated by firefighting organisations. Then, in 1735, the first mutual insurance company on American soil, albeit short-lived, called the Friendly Society of Mutual Insuring of Homes against Fire, was set up by the residents of Charleston, South Carolina. Soon after, at the instigation of Benjamin Franklin, a mutual insurance company was set up was set up in 1752 called the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, better known as the ‘Hand in Hand’, based on the company symbol. By the 1780s, several fire insurance mutuals had developed in all major cities of the East coast of the USA. The Philadelphia Contributionship exists to this day.
As time passed, insurance also began to be conceived as protection for individuals, with the potential to liberate them from the ups and downs of life, or, as described by Etienne Clavière, banker and political figure of the French Revolution: ‘coming to the aid of this precious sentiment that attaches an individual to other individuals who are to survive him. It prepares a guarantee for misfortune without harming either industry or the economy’ (Prospectus for the Establishment of Life Insurance (1788).
With the ‘Siècle des Lumières’ (age of enlightenment) came the belief that insurance was an extension of human control over accident, ill fortune and uncertainty. Daniel Defoe, in an Essay upon Projects, captured the spirit of the age when he proclaimed that through the reciprocal protection provided by mutual insurance, ‘all the disasters of the world might be prevented and mankind be secured from the miseries, indigence and distresses that happen in the world.’
What followed was the industrial revolution and with it, structural changes in several aspects of society: not only did the rural exodus alter the traditional family solidarity but it also resulted in the emergence of a new working class, crowding in industrial cities, living in unsuitable housing and subjected to harsh working conditions. This new form of poverty that extended to large segments of the population became the breeding ground in which fraternal and mutual benefit societies could emerge.
At the same time, the industrial revolution brought about new needs for employers, who were held financially liable for the risks borne by workers in industry, mining and construction. This contributed to the growth of workers compensation insurance, mostly set up on a mutual basis by the employers themselves who could thereby retain control over the underwriting and the cost but also prevent workers slacking or going on strike.
Like banks, insurance companies became actors on the financial and economic scene, as part of the real economy: financing public debt of states, carrying out stock transactions and building wealth.
Another turning point for the expansion of social insurance, according to some historians, is the period extending from the 1850s to the 1940s when the market was reshaped by the incursion of the State and its social schemes which created some (healthy) competition between the insurance providers (commercial and mutual) on products and extending access to larger segments of the population, namely the working and middle classes.
Following the argument developed by Swiss historian Martin Lengwiler, the sudden expansion of insurance products and insureds was not the result of commercial, mutual or state insurers in isolation but of the ‘competition and interaction between public and private actors within the insurance market’ (Competing Appeals: The Rise of Mixed Welfare Economies in Europe, 1850-1945).
We would like to close this first chapter by reflecting on the positive outcomes that can arise from the mix of public/private or local/national institutions, much like the ones derived from the North- South solidarity which is already taking place within the ICMIF membership. Could this constitute good teaching for the next evolution of mutual insurance?
This is only part of the story and we would like to invite you to tell us your story of how your organisation started and has grown. Let’s weave the history of our sector together! Please send your stories to me at Catherine@icmif.org
Picture shows: Catherine Hock with Alejandro Asenjo, Director General, La Segunda (Argentina) during the 2017 ICMIF/Americas Conference