personally bound — In other respects the
same principles govern in both cases.”
But it was on the liability side of the
balance sheet where insurers most prominently emitted their distinctive aromas and
flavors. Instead of offering demand liabilities like deposits or notes, insurers offered
policies, contracts that promised payment
contingent upon the occurrence of some
unfortunate event like a fire, shipwreck or
death. Just like people today, antebellum
Americans used the contracts to hedge
against life’s many risks. For that reason,
famed economist Adam Smith extolled
the industry, arguing that “the trade of
insurance gives great security to the fortunes of private people, and by dividing
among a great many that loss which would
ruin an individual, makes it fall light and
easy upon the whole society.”
In 1835, the anonymous author of An
Inquiry Into the Nature and Utility of
Corporations Addressed to the Farmers,
Mechanics, and Laboring Men of Connecticut explained that without insurers “commerce would languish” because “without
the security they offer to mercantile hazards, who would risk his fortune upon the
perilous ocean? Who would embark in
the business of transporting to distant and
foreign markets, the surplus production of
our soil, and industry, and bringing back
in return the invaluable commodities of
other climes; if by the event of tempest
or accident, the whole property of the
adventure might be buried in the deep,
without hope of recovery or recompense?”
That same author noted that “the persons
most benefitted [sic] by insurances” were
not the rich but rather “those of moderate
property, and those who are just embarking in business with a small or borrowed
capital” because without coverage “the
Table 2
house or shop of an industrious mechanic
might be laid in ashes, and the earnings
of a long and arduous life, consumed in a
single breath — and himself and family be
thrown houseless and destitute upon the
charities of the world, unless the means
were wisely provided for an indemnity
against such accident.”
Many authors believed that insurance
should be underwritten only by relatively
large corporations. “It is necessary,” Smith
wrote, “that the insurers should have a
very large capital. Before the establishment of the two joint stock companies for
insurance in London, a list, it is said, was
laid before the attorney-general of 150 private insurers who had failed in the course
of a few years.” In America, individual
underwriters never dominated the fire
or life portions of the insurance industry
and the traditional system of individual
private underwriters insuring marine risks
through unchartered insurance brokerages largely gave way to chartered corporate insurers by 1815 or so, although some
private underwriting continued into the
1820s in smaller ports.
Table 2 breaks down America’s antebellum insurers by the type of risks they
underwrote and their capital structure.
As mentioned previously, mutuals were
owned by their policyholders and had no
equity capital. Joint stock insurers were
owned by stockholders. Hybrids were part
mutual and part joint stock and hence were
owned partly by policyholders and partly
by stockholders. Miscellaneous types of
insurance included ransom, livestock and
horse theft insurance. Of the three major
lines — fire, life and marine — life insurers
were the least numerous and attracted the
least equity investment. Life insurance
grew slowly before the Civil War for a
variety of technical reasons. New entrants
pushed the value of life insurance in force
to around $100 million circa 1850, but by
1860 the lives of only about 70,000 Americans, mostly middle- and upper-income
urban northeasterners, were insured, for a
total of about $150 million.
Slaves were insurable, but more as livestock than people because what masters
insured was a percentage of the slave’s
market value, not a multiple of his or her
expected future income. Slave insurance
was sometimes written by fire insurers
and sometimes by regular life insurance
companies, but specialized slave insurers such as the Baltimore Life Insurance
Company, North Carolina Mutual and
Greensboro Mutual issued most policies.
The number of policies issued was not
large because premiums were high and
policies short due to a dearth of slave
mortality data and concerns about moral
hazard (killing “unsound” slaves for cash)
and adverse selection (insuring only slaves
who were sick or engaged in dangerous work). The business grew rapidly in
the 1850s, however, especially for slaves
engaged in construction, mining or manufacturing activities.
Insurers were economically less important and politically more controversial
than banks because they generally did not
influence the money supply or the payments system (although a few insurers of
ill repute issued money-like bonds). They
became objects of public derision only
when they failed to pay claims due to their
bankruptcy or a proclivity for lawsuits. A
few insurers boasted of their acumen at
fighting claims in