Interview with Professor Hannah Farber
It’s no secret that the team here at Marble thinks that insurance is actually pretty cool. And more than that, we want to share our passion with our members as well!
With that in mind, we recently sat down with Professor Hannah Farber, an assistant professor of history at Columbia University, who has just published a new book, one she describes as a “swashbuckling” history of insurance in the United States. Who could be a better partner to convince people that insurance is actually pretty exciting!
A specialist in the culture and politics of early American commerce, Professor Hannah Farber holds a Ph.D. from the University of California, Berkeley. Recent areas of research include the bill of lading, commercial shippers' marks, and laws against insuring the slave trade.
Her first book, Underwriters of the United States: How Insurance Shaped the American Founding, will be published in November 2021 by the Omohundro Institute of Early American History and Culture in conjunction with UNC Press. See below and order your copy with a special discount code!
First off, insurance can sometimes catch a bad rap as being “boring.” We definitely don’t think so here at Marble, but we’re curious: How did you initially get into studying insurance? Any quick rebuttals you use to convince people that insurance is not boring, and is, in fact, very interesting?
In graduate school, I set out in search of stories of swashbuckling adventure on the high seas. I was at first extremely amused when I began to perceive how much time my purportedly swashbuckling captains in the Age of Revolution spent managing their paperwork — particularly the paperwork of the "boring" business of insurance. Once I became aware of it, I began to see insurance everywhere: port city newspapers advertising insurance dividends and insurance rates; insurance corporations listed alongside banks in city directories; whiny letters to legislators complaining about high insurance rates; Founding Fathers like Robert Morris and Alexander Hamilton who knew a lot about insurance and made a lot of money off of it. Insurance was a deeply political phenomenon in the early United States, and it was a constant consideration in conversations about national defense. And there was just so much money in it! Insurance companies amassed an extraordinary amount of capital in the United States, beginning in the 1790s, and once I became aware of that, I found it particularly interesting to see how they put that money to use.
I also never got tired of reading insurance claims, which revealed all of the things that went wrong on the ocean: thieving captains, rotting grain, captures by privateers — the drama was endless and infinitely complex. The extraordinary power of the marine insurance business of the 18th and 19th centuries, in fact, is that it was equipped to manage the manifold peculiar uncertainties and disasters that befell people traveling beyond national borders and through war zones. Expert insurers were extraordinarily well-informed people, and their expertise made them politically indispensable.
You mentioned in passing that you’re not as well-versed in modern insurance, but you know all about “how insurance functioned as a political force in the era of the nation's founding.” What made you zero-in on that time period? Are there any lessons from that chapter of insurance history that we should be thinking about today?
My book is about a very old and wealthy business that came careening into a brand new country. Insurers had a long tradition of asserting that they made their own rules, and that they, alone, were qualified to control the behavior of their merchant customers. My book, Underwriters of the United States, asks: what happens when a new government is put into place, starts making its own rules...and immediately comes into contact with a business that pronounces very firmly that it has rules of its own!
The United States is not involved in a revolution today, but one of the big points in my book is that governments are always involved in the business of risk management, even if they don't always see it that way. (A Clinton-era official once said that in budgetary terms, the modern United States itself is an insurance company with an army). Even when the government says it is NOT in the business of managing certain risks — well, that, in itself, is a decision about risk! Think about big risks like climate change, or Covid. Who should pay to bail out homeowners who lose property in areas where the risk of flooding has increased? Should insurance companies make the unvaccinated pay more for coverage? These are questions about risk that are also very political. A crucial context is what the government is doing (or not doing). When you’re thinking about what an insurance company should or shouldn’t do, questions of public policy and law are always in the background. The reverse is also true: when you’re thinking about what the government should or shouldn’t pay for, to protect its citizens against certain kinds of risk, questions of cost are always in the background. And that is an insurance calculation.
In your book The Political Economy of Marine Insurance and the Making of the United States, you touch repeatedly on the tension in the relationship between trans-national insurers and the state (whichever state that may be). At one point you observe that while insurers “organized merchant behavior, they did not always do so in the ways that the government most desired. Insurers were often tempted to underwrite illegal or quasi-legal voyages, since it was through these risky voyages that the greatest profits could be made.” This historical context may come as a surprise to some readers, particularly readers who are more familiar with modern insurance — which feels very tightly regulated at the state-level. Has the temptation to underwrite “quasi-legal” ventures diminished, or has the industry just done a better job fitting the rules around what they want to underwrite? Any modern quasi-legal examples come to mind?
In my book’s conclusion, I hypothesize that it’s really the contemporary mega-business of reinsurance that may be more comparable to the marine insurance business of the Age of Revolution, given that it is transnational, averse to public attention, and directly concerned with large-scale political phenomena. In addition, anywhere there is uncertainty regarding political authority in a certain domain (that is, anywhere we’re not sure who is in charge or what the regulatory regime might be), there is both a lot of danger and the possibility of making a lot of money. Businesspeople are more likely to venture in if they think they can get insurance, and insurers are going to venture in if they think they can get clients (and if they think they can manage the legal situation). These are situations that remind me of the era of war in which my book is set.
There’s an observation in your thesis, Underwritten States: Marine Insurance and the Making of Bodies Politic in America, 1622- 1815: “As an unincorporated group of marine insurers, Lloyd’s acquired its most formidable political powers during periods of war, when its information about foreign predations and the state of the British merchant fleet became particularly valuable to the government." In other words, Lloyds was able to leverage its international data on shipping risks and losses as a valuable asset to a British government at war. The first thing that came to mind when we read this was: Why have we not seen a similar mobilization, and frankly, pursuit of political leverage, from insurers when it comes to combating climate change? Is the data more generally available, so insurers don’t have the unique leverage they once did? Or has the relationship between insurers and the government changed?
That's a great question. I suppose one difference is that Lloyd's and the British government were playing on what they understood to be a finite chessboard. They knew how many ships there were, and they could calculate the possible extent of their losses, even if they couldn't exactly predict those losses. Moreover, during the Napoleonic Wars, the public was broadly mobilized, the problem was national, and the goal was clear (win the war against France!). It was even possible to make a profit from insuring throughout the conflict if the relationship with the government was well-managed! This set of conditions drew insurers and the state together. By contrast, climate change is a giant, sprawling, transnational problem. The American public is divided, the actual goal (the ending of dangerous emissions) is daunting and global, and "success" won't bring profit in an immediate and predictable fashion. Being very cynical, I would say that something needs to change to bring an "enemy" into focus on a national level in order to force broader action. Businesses that profit from fossil fuels, and their insurers, would need to be understood more clearly as national enemies. Insurers would need to lose their ability to maneuver in the background. The insurers' economic niche needs to be made more visible and specific so that the public can apply more effective pressure to insurers and the lawmakers who regulate them.
Some of our members may be aware of the common covered perils in a modern household insurance policy, but in a recent twitter thread of yours, I saw a list of perils I had never seen before: “Seas, Men of War, Fire, Enemies, Pirates, Rovers, assailing Thieves, Jettisons, Letters of Mart and Counter Mart, Surprisals, Takings at Sea.” What is a “rover”? And what is a “surprisal”? Are there any notable examples of these historical coverage types that people may know about? Should I be getting coverage for these??
A pirate has a technical definition in law: it is an assailant who attacks because he is set on personal gain, and who owes allegiance to no country. He isn’t attacking for the glory of his nation; he’s doing it for himself. Rover is basically a synonym of this (there is a lot of redundancy in English legal boilerplate). There are old ballads about the “Sallee Rovers,” the North African vessels (as in Salé, Morocco) that preyed on European merchant ships in the Mediterranean. Many North African armed vessels did, in fact, have some relationship to their local governments, and were thus not exactly pirates, but Europeans did not tend to be interested in the nuances of this. A “surprisal” is an unexpected attack. The merchant captain might not be able to provide a definitive answer about WHY he was attacked, conceivably, but would still need to immediately report the circumstances of loss to his insurer. Pirates were less common than one might think, though they do capture the imagination; they tend to multiply for brief periods of time in particular regions where empires don’t have their acts together. In the age of Napoleonic warfare, it was much more common for merchant ships to be captured by naval vessels or privateers than to be captured by out-and-out pirates. Capture by a naval vessel or privateer could be a rather tedious and bureaucratic process. The merchant ships knew that they were outgunned. If they couldn't escape, they surrendered quickly, and then subsequently their crews had to cool their heels in foreign ports for weeks or months at a time. Archival collections have some great sailors' diaries that describe these episodes: there tends to be a lot of drinking, card playing, and petty theft.
Last question! We have a series of blog posts on “insurance trivia,” covering everything from the Lutine Bell to modern-day insurance fraud on the high seas. Any recommended stories we should look into for our next post?
I’m dying for someone to write a book (or make a movie!) about the secret insurance agent spies of WWII (see Mark Fritz, “The Secret (Insurance) Agent Men,” Los Angeles Times, Sept. 22, 2000).
Thanks to Professor Hannah Farber for her time and expertise! If you want to learn more from Professor Farber, you can place an order through uncpress.org and get 40% off the book with discount code 01DAH40.