How Marine Insurance Has Developed
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A ship at sea faces many dangers even in these days of instant communications, satellite navigation and modern engineering standards. How much more dangerous they were when navigation was in it's infancy, weather forecasting rudimentary, ships were far more fragile and propulsion was dependent upon something so unreliable as the wind. With such uncertainties, who would risk their entire fortune on the possibility of a cargo load of valuable merchandise finishing up on the sea bottom because of a storm, mechanical failure or error of judgement by a captain or crew member?
The answer was for ship owners to band together to share losses amongst each other. That way, the cost of losing a ship, whilst painful financially, would be shared amongst many and so would not be ruinous to one particular individual or company. The likelihood of losses from a hundred voyages or so could be calculated fairly accurately and so a common pool could be set up to compensate any member of the syndicate who had a loss. Marine insurance was born.
Like every other human endeavour it was not as simple as that. What happened if there was a partial loss only? What if part of a cargo had to be sacrificed in order to save the rest; if the rest was owned by a different merchant? Should a captain put his own ship (and cargo) in danger in order to save the cargo on another vessel? These and many other questions were answered by a variety of court decisions and codified into a sometimes seemingly bewildering plethora of local, national and international regulations. The old simple method of ship owners getting together informally over few drinks in Lloyd's coffee house was no longer enough and a more sophisticated system was needed.
Today marine insurance is a highly efficient but complex operation, with worldwide premiums in 2014 calculated to be in excess of forty billion pounds. The old sea dogs would have been impressed, but initially baffled by the amount of knowledge and experience that goes into administering this vast industry.
Marine insurance is not something to entrust to amateurs any more.