What Insurance Wants You To See

The following is a guest blog post by Hannah Farber, author of Omohundro Institute & UNC Press published Underwriters of the United States: How Insurance Shaped the American Founding. Unassuming but formidable, American maritime insurers used their position at the pinnacle of global trade to shape the new nation. The international information they gathered and the capital they generated enabled them to play central roles in state building and economic development. During the Revolution, they helped the U.S. negotiate foreign loans, sell state debts, and establish a single national bank. Afterward, they increased their influence by lending money to the federal government and to its citizens. Even as federal and state governments began to encroach on their domain, maritime insurers adapted, preserving their autonomy and authority through extensive involvement in the formation of commercial law. Leveraging their claims to unmatched expertise, they operated free from government interference while simultaneously embedding themselves into the nation’s institutional fabric. By the early nineteenth century, insurers were no longer just risk assessors. They were nation builders and market makers. 

Deeply and imaginatively researched, Underwriters of the United States uses marine insurers to reveal a startlingly original story of risk, money, and power in the founding era.

When insurance companies advertise themselves to potential policy buyers, they seek to portray themselves as stable and secure. The idea, of course, is that insurance can reduce the harm caused to you by the unpredictable events of your own life. In fact—as twentieth-century comedy never failed to point out—insurance has often succeeded in portraying itself as an exceedingly dull business. Twenty-first century insurance companies continue to deploy imagery that is either anodyne (happy, peaceful families) or comic relief, like Geico’s gecko, or Allstate’s sinister “Mayhem,” whose misdeeds can be prevented by high-quality insurance.

However, insurance companies are not always as stable than they allege themselves to be. This was certainly the case for nineteenth-century American insurance companies, whose two core imperatives—keeping themselves secure, and making money for their shareholders—often came into conflict. They needed to have enough money on hand to indemnify customers who experienced losses. At the same time, their primary objective was to make money for their shareholders, and to supplement their income from selling insurance policies, they could not resist investing insurance buyers’ funds. Where there was the hope of gain, there was also the risk of loss. 

The first American marine insurance companies faced the possibility of large-scale losses on their policies and on their investments. American merchant vessels had the potential to make enormous profits after the French Revolutionary Wars began in 1793, but they also faced an ever-present, constantly fluctuating risk of capture by foreign warships and privateers, or (if they were smuggling) by their own countrymen. No actuarial table could predict this danger, because it was fundamentally political.  At the same time, early American insurance companies had only a narrow set of investment opportunities. They mainly opted to invest their funds in the first American banks – which were as new as they were, and which were similarly dependent on merchant wealth — and in the early American government itself, which also faced significant political risk. 

How did these early, shallow-rooted, and politically pressured corporations like to portray themselves? Certainly not with sassy animals or avatars of chaos—in fact, they had little incentive to put themselves on display for the public at all. Their directors and customers were predominantly merchants, who shared expertise in the complicated practices of financial calculation and commercial risk assessment. Since these men were primarily communicating with one another, they had little incentive to make themselves visible to the public.

On the whole, the American insurance sector began to make itself more visible when it shifted toward fire and life insurance, forms of business that urgently needed to attract the business (and retain the trust) of the public at large. 

If we look only at the urban landscape, it might seem that ‘big’ insurance in the United States began in the mid-nineteenth century. But this is seeing only what insurers want you to see. A great deal of insurance was bought and sold, and a number of crucial decisions were made about the structure of corporations and the investment of their funds, before the American public was paying much intention. 

Hannah Farber is assistant professor of history at Columbia University.