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History of Insurance Adjusting, Part 2: The

Middle Ages

In the days of the Roman Empire, which stretched from North Africa and the Middle East to
Scotlandthe Romans hadnt quite subdued those Norsemen yettrade and commerce
could travel the Roman roads in relative safety, although piracy was still common on the
Aegean and Mediterranean Seas, and insurance contracts often were taken out on shipments,
depending on the quality of the vessel.

The Justinian Code (Corpus Juris Civilis Iustinianus) included the earlier Rhodian law of
jettison, that when some goods had to be thrown overboard to save the vessel, those whose
goods survived shared in the loss on the basis of the general average value of what was

Remember that little phrase in the family auto policy of the 1960s about paying general
average? To many of us it was a mysterious phrase, but it meant that if the insured auto was
on a ferryboat and other vehicles had be jettisoned to save the vessel, the FAP would pay the
general average loss assessed to those whose vehicles were saved.

The closest todays personal auto policy comes to such coverage is the physical damage
provision for expenses for which you become legally responsible in the event of loss to a
non-owned auto, but only if the insured has other than collision coverage on an owned
automobile. Considering that there is no benefit to [a] bailee or common carrier, this is far
removed from the jettison theory of general average.

The Rise of the Insurance Guilds

The dissolution of the Roman Empire, about the 5th Century A.D., brought repeated
invasions by Barbarians from the north and by Moors and pirates from North Africa, and
resulted in the disruption of trade and commerce in the Mediterranean World, wrote
Humbert O. Nelli, a historian and professor in the Department of Insurance at Georgia State
University in Atlanta in the June, 1976, issue of the CPCU Annals. The growth of
Christianity with its abhorrence of usury further handicapped trade and banking. In the period
between the fall of Rome and the rise of the Italian city-states, about the 12th century A.D.,
the void was partially filled by Jewish itinerant peddlers and money lenders and by Jewish
merchants who filtered in fromByzantium andNorth Africa where they were actively engaged
in commerce.

It may have been Scandinavian and Germanic gildas (guilds) that began to take the place of
the Roman collegia of merchant shippers, providing primarily fraternal benefits and burial
duties of the older Roman and Greek societies, Nelli suggests. But it was the Italian city-
states that gave rise to the capitalistic commerce in the 12th and 13th centuries. Marco Polo
ofVenice had traveled east, and the Silk Road was opening trade with the Orient. Medieval
crusades made European kingdoms aware of the wealth of the East, and there is some
indication that it was the financing of pilgrims travel to the Holy Land that gave the Knights
Templar their wealth.

Risk Management in Medieval Europe

The feudal system common throughoutEuropein the Middle Ages was a class system, but it
lacked a middle class. There was the aristocracyroyalty, knights and high positions in the
churchand there were the serfs, the yeomen, sailors and peasants who served them from
birth to death. When a king wanted a war, he called on his noblemen to provide the soldiers,
and the serfs took up their pitchforks and spikes or bows and arrows and battled to the death.
Unlike the well-trained and disciplined Roman Armies of earlier centuries, peasant armies
just did as they were told. If wounded, they died. Livestock fared better. Mutual insurance on
cattle was sold in Flanders as early as 1250.

Which is not to say that there were no hospitals; learning and writing was maintained by
monasteries and universities. Universities practiced which might be called medicine, adapting
knowledge from the Greeks who had learned under Hippocrates. Many monks learned the
healing arts as well, and every great city, from Paris and Bologna to Oxford and Cambridge
had universities teaching a variety of sciences, including medicine. However, the science of
risk was not generally among the subjects taught.

The idea of risk management was the same as in times before the Roman Empire: Build your
city on a hilltop, and fortify it with a wall. As long as Joshua didnt show up with that
trumpet of his that blew down the walls ofJericho, the city might escape invasions by an
enemy army or a dread disease. With noblemen fighting each other for territory and the
Italian city-states constantly at war with each other, it was clear then, as now, that war was an
uninsurable peril. Many war widows and orphans spent their days in convents or monasteries,
their only place of any refuge and survival.

So, who were the medieval adjusters? Most likely it was the traveling friars. When a
Franciscan friar came to town everyone flocked to confession, for the penances they imposed
were reasonable and helpful. It is no accident that in Walter Scotts Ivanhoe it was a traveling
friar who took a starring role. While there may or may not have been a real Robin Hood,
there were certainly a few jolly Friar Tucks about the land serving the poor and doing their
best to teach the illiterates how to read. Some of the top scholars in medieval universities
such as the Franciscan Duns Scotus in Paris reintroduced Aristotelian thinking back into the
early 14th century, perhaps leading to the Renaissance.

Still, it was not until the 14th century that an insurance contract per se arose. To protect
themselves against fortuitous loss of their goods and ships and still evade the provisions of
the usury laws and the prohibitions of a powerful church, the merchants had to engage in
subterfuge and use fictitious language in their contracts of insurance, Professor Nelli
explains. Some records show that burglary insurance was also available.

Many modern insurance writers have accepted [one historians] statement that the first true
insurance contract is dated October 23, 1347, notes Nelli, and [that it was] recorded in
theGenoaArchives. Recently, however, an earlier contract, dating from February 13, 1343,
has been found. Such records of marine insurance were primarily from the notaries of the
city republics, mostly those on the east or west coasts ofItaly. Christopher Columbus came
fromGenoa; perhaps the Spanish royalty that financed his westbound search
forIndiapurchased insurance on the tiny fleet to hedge their bets.

By Land or Sea

The Renaissance was not limited to Florence and the Italian city-states; in Paris Abbot Suger
(Soo-jay) of Ste. Denis (San-Da-nee) improved on Romanesque architecture by opening the
walls to light by using buttresses to support the walls and roofs of his abbey, causing Bernard
of Clairvaux to declare it an invasion of the Goths! So Gothic it became, and the concept
was adapted all over Europe. Yet commerce inEurope had one major problem: The Alps.
There were a few mountain passes, so traveling merchants were limited primarily to either
old Roman roads or rivers, the Seine, the Rhone, the Danube and theRhine.

As the Italian concept of insurance guilds moved north, the notion of contracts for loss of
goods to natural or man-made perils traveled with them. Consider, for example, the expanse
of the Hanseatic League fromGermanyintoScandinavia. While Christian missionaries had
perhaps tamed the Norse Vikings, they still remained the primary sailors of the North, just as
the Venetians had been of the Mediterranean andAegean. But there were new threats by the
close of the Dark Ages.

One was the Black Death that depleted Europes population. Another was the Islamic
invasions and the fall of Byzantium to the caliphs. Travel was a major endeavor. Many who
set out on pilgrimages to holy places never made it. Thus one of the main items of trade
became religious relics: if pilgrims couldnt get to a holy place, holy objects came to them.

The Impact of Religion on Trade

It was not only food and trade goods that became the merchandise of the late Middle Ages,
but also religious beliefs. Yet, even for a world without modern transport and communication
new religious ideas and orders spread quickly. Giovanni Bernadone (of Assisi) had barely
received permission from Pope Innocent III (the same pope who almost claimed England
from Prince John while his brother, King Richard, was imprisoned and awaiting ransom,
leading to the creation of the Magna Carta and parliamentary law) to form his Order of Friars
Minor than the Franciscans had spread all over Europe.
When an Augustinian theology professor in Wittenberg, Martin Luther, posted his 95
arguments against the Church in 1517 on the church door for debate, he set off a war between
Catholics and Protestants that tore Europe apart, and still blazes in certain corners of it. What
the Reformation did to commerce is another story, but it certainly had an effect on the sale of
relics and indulgences used by Rome to finance Vatican construction and artistic projects.

The concepts of insurance had spread by this time to England, and with the discovery of the
New World across the Atlantic and new routes to Asia around the Cape of Good Hope in
Africa, maritime commerce was off and running. It had a new triangular pattern for British,
French, Dutch and Spanish traders: Northern ports toSenegaland other African ports for
slaves, then hauling the slaves to South American, the Caribbean or North America using the
Easterly Trade Winds, and returning to Europe via the Westerlies and the Gulf Streamwith
sugar, rum, coffee, cotton, tobacco and gold. But with the Atlantic crossings came risks, and
risk-taking was what underwriting and claims handling was all about.

In the next month, we will explore this further, with the rise of the ocean marine insurance
business in London.