Insurance

Although the insurance industry began to grow in the late colonial period, it was only after the independence of the United States that it expanded rapidly and became a significant factor in the American ECONOMY. These developments centered in marine and fire insurance and reflected both the increasing significance of mercantile activity in what would become the United States and the rise of a consumer culture. Life insurance remained less popular before 1815 and would spread only later in the 19th century.

The first efforts to put in place marine insurance in British North America followed the pattern set in Great Britain at coffeehouses such as Lloyd’s of London, where a group of individual merchants would meet to pool resources to spread risk and underwrite insurance for specific voyages. The first known North American insurance enterprise occurred in Philadelphia in 1721, and by midcentury scores of merchants in all of the major port cities engaged in this type of activity. The first organized insurance company also appeared in Philadelphia, started in the 1750s by Thomas Willing. Although the company expired a few years later, Willing, along with Robert Morris and others, established a more permanent company that lasted from 1760 to 1774. Insurance rates in the North Atlantic ranged from 2 to 5 percent in peacetime. During the Revolutionary War (1775-83) insurance rates skyrocketed to 55 percent and higher. After the war the insurance sector underwent a major transformation as states issued many charters of incorporation to insurance companies, which spread the risk to hundreds of shareholders and acquired millions of dollars of capital. By 1815 these companies, and not ad hoc groups of merchants, had become the main source of marine insurance.

The fire insurance industry followed a similar trajectory and was also modeled on developments in Great Britain. The rise of consumerism in the Anglo-American world, especially after the Great Fire of London in 1666, encouraged property holders to seek to protect their homes and possessions through insurance. If the English began to buy fire insurance in the late 17th century, colonial Americans only started to do so in the 1720s. Benjamin Franklin took these efforts a step further when he organized the Union Fire Company in 1750 to insure the homes of active members of the voluntary fire brigade of the same name. With some alterations in name and organization, this company has continued as an insurer to the present. Two types of fire insurance companies emerged: mutual companies such as Franklin’s, which were owned by the policy holders; and for-profit companies, which were a means of investment for the company shareholders. As with marine insurance, after independence state-chartered companies proliferated and generated incredible cash reserves.

By 1806 marine and fire insurance firms together held at least $15 million in capital and invested in mortgages, real estate, public securities, and common stock of commercial banks and other companies. These companies differed from enterprises that had emerged in England. They were uniquely American and modern enterprises that drove the engine of capitalism in the United States.

See also corporations.

Further reading: Edwin J. Perkins, American Public Finance and Financial Services, 1700-1815 (Columbus: Ohio State University Press, 1994).