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THE DEVELOPMENT OF MARINE INSURANCE
Marine insurance is far more technical and complex than any other system of indemnity. Fire insurance provides against loss occasioned by a single occurrence. Life insurance insures against an event, the occurrence of which is inevitable, and the risk concerning which has been approximately measured by the application of the law of average to accumulated data. Marine insurance, however, undertakes to indemnify a person against the loss of ship, goods, freight, anticipated profits, or any other insurable interest, through any of the numerous perils and adventures connected with navigation, such as the "perils of the sea," fire, collision, pirates, thieves, seizures, and restraints, jettison, barratry of the master or mariners, and all other perils, losses, or misfortunes which may be assumed by the policy.
While determined efforts have been made for years, and with success, to place life and fire insurance upon a scientific basis, this can be said of marine underwriting to only a limited degree. Some of our leading marine companies do possess a great mass of experience which is used as a basis in computing rates. Yet, taking the business as a whole, there is no other branch of insurance in which success is so largely dependent upon the native sagacity, the keenness for observation, and the general specialized ability of the individual underwriter to know not only men, but the effect of climate, seasons, geographical localities, and numerous other considerations upon any of a large number of risks, as in marine insurance. To a very large extent the business is
inherently a system of estimates, and the importance of the personal qualities of the underwriter cannot be over emphasized.
It is this complex nature of the business which is responsible for the fact that marine insurance is to-day a comparatively little known business to the general public. Consult any of our leading insurance journals and a score or more of pages will be found dealing with other lines of insurance for one dealing with this, the oldest and possibly the most interesting, and, in many particulars, an equally important branch. This comparative absence of notice, however, should not cause us to overlook the fact that in this country alone, between six and seven billion dollars worth of property is insured under marine policies, and that it is through this form of insurance that commerce is enabled to become general and continuous. People would not risk their fortunes in enterprises surrounded with so many dangers as are mercantile ventures, were it not for the indemnifying contract of marine insurance, which in distributing the losses of a few among the many, removes the sense of fear and makes the shipping industry one of certainty in its results, instead of a half gambling enterprise. As William W. Bates states: "Marine insurance bears to commerce the relation of bodyguard rather than of mere servile attendant. ... Of the active forces which influence, control, or forbid the employment of shipping, none have greater effect than the marine-insurance power.''1 Marine underwriting may, indeed, be ranked as just as much an instrumentality of commerce and almost as necessary to navigation as the ship itself.
To this it may be added that, as the methods of conducting oversea trade are being constantly transformed, marine insurance is becoming an increasingly important adjunct of commerce. As Mr. Gow writes: "When large transactions
'William W. Bates, "The American Marine," p. 219.
are worked, as is now extremely common, with credits and margins, the amount of the premium of insurance is often the item that decides whether some venture will be attempted or not. The protection which marine insurance affords is now usually regarded as an absolute necessity to the oversea merchant; and thus by degrees, marine insurance has become in one shape or another an integral, almost an essential factor in oversea commercial transactions." 1 It should also be stated that, as compared with other property, a greater risk of loss attaches to property afloat. Furthermore, our carriers on land, because of their greater magnitude, can consider loss of cars, locomotives, or freight as a part of their operating expenses, partly because the losses are rarely large in comparison to their total assets, and partly because they average approximately a certain definitely known amount. In the case of water transportation, however, the companies are, except in a limited number of cases, not nearly so large, and a single disaster may spell ruin. Again, our common carriers on land are usually held liable in law for loss or damage to goods while in transit. Water transportation companies, on the other hand, are liable for such loss to only a limited degree, and the shipper must, therefore, seek protection in the form of a marine policy.
Early History.—Marine insurance may be regarded as the earliest form of indemnity, antedating other kinds of insurance by many hundred years. Even centuries before the introduction of marine underwriting, as we know it to-day, the commercial nations of the ancient world secured the benefit of insurance through the so-called "loans on bottomry," e.g., loans made on the security of the ship and cargo at high rates of interest, and with the understanding that the principal, with interest, was to be repaid only in the event of the safe arrival of the vessel, and that the lender
1 William Gow, "Marine Insurance," p. 2.
was to forfeit both principal and interest in case of loss. Instead, then, of paying a premium before starting the voyage, as is now the case, and receiving the indemnity after a loss is incurred, the insured, under the bottomry loan, received the indemnity in advance and only returned the same plus a premium after the safe termination of the voyage.
Such loans on bottomry were especially entered into by members of the Roman nobility, who, too proud to interest themselves directly in commerce and yet desirous of attaining large interest returns, could here find a convenient method of investing their funds profitably, and"at the same time avoid engaging personally in mercantile pursuits. That such loans were prevalent among the commercial nations of early history is shown by the numerous references to such transactions which are found in the legal literature of the Romans. In an edict of the Roman Emperor Justinian of A.d. 533, for example, the rate of premium on such loans was fixed at 12 per cent, implying that the practice must have been very general at that time. It should be borne in mind, however, that this method of indemnification is the only one approximating modern insurance of which antiquity furnishes us any clear and direct evidence. It is remarkable, indeed, that nations so far advanced in their legal systems, as were the Mediterranean countries, and with such extensive commercial interests, should have left us no direct and conclusive evidence to show that they at all understood marine insurance as now practiced.
Marine insurance as it exists to-day originated at a much later date than the loan on bottomry. Evidence seems to show that it had its start in Italy, especially among the Lombard merchants, at the close of the twelfth and the beginning of the thirteenth century. Prom thence it spread to Flanders, Portugal, and Spain during the fourteenth and fifteenth centuries, and was finally carried to England by the Lombards in the early part of the sixteenth century.