1 00:00:17,560 --> 00:00:21,479 Speaker 1: Pushkin too quick. No, it's perfect push kid stuff. You 2 00:00:21,600 --> 00:00:33,159 Speaker 1: got it. 3 00:00:34,560 --> 00:00:40,680 Speaker 2: Robert Smith, Robert Smith, Robert Smith. Yes, sir, get excited, Yes, Sair's. 4 00:00:40,680 --> 00:00:44,560 Speaker 2: We're doing Lloyd's of London. Yes, we're going three hundred 5 00:00:44,640 --> 00:00:48,519 Speaker 2: and plus years. We're going from Edward Lloyd, the man 6 00:00:48,680 --> 00:00:51,239 Speaker 2: selling coffee for a penny a cup in the sixteen 7 00:00:51,280 --> 00:00:55,480 Speaker 2: eighties into the twentieth century when Lloyd's ensured Bruce Springsteen's 8 00:00:55,520 --> 00:00:58,680 Speaker 2: voice and nuclear power plants and satellites, all the way 9 00:00:58,760 --> 00:01:01,480 Speaker 2: up to the moment when Lloyd's almost took down the 10 00:01:01,480 --> 00:01:02,640 Speaker 2: global economy. 11 00:01:02,240 --> 00:01:03,720 Speaker 3: With too much for one show. 12 00:01:04,000 --> 00:01:06,680 Speaker 2: So we're doing too I'm Jacob Goldstein. 13 00:01:06,360 --> 00:01:08,960 Speaker 3: I'm Robert Smith, and this is business history. 14 00:01:08,960 --> 00:01:11,240 Speaker 2: How about the history of Business Today? Is the first 15 00:01:11,240 --> 00:01:14,520 Speaker 2: of two episodes about Lloyd's of London, one for each 16 00:01:14,759 --> 00:01:19,000 Speaker 2: l Nice. It's the Lama of Insurance. The Lloyd's story includes, 17 00:01:19,040 --> 00:01:23,360 Speaker 2: but is not limited to, the Enlightenment, coffee war, prediction markets, earthquakes, 18 00:01:23,400 --> 00:01:27,399 Speaker 2: the Titanic, as Besto's, Pink Floyd and the Queen Consort 19 00:01:27,880 --> 00:01:32,920 Speaker 2: of England Forever. Also what There's more. I wrote a 20 00:01:33,000 --> 00:01:37,200 Speaker 2: click baity headline for our Nerds the way Lloyd's used 21 00:01:37,360 --> 00:01:44,200 Speaker 2: unlimited liability will shock you like like like subscribe, smash 22 00:01:44,600 --> 00:01:48,720 Speaker 2: that subscribe button, Robert. Before we get into the Lloyd's story, 23 00:01:48,800 --> 00:01:51,280 Speaker 2: let's talk about insurance for a minute. As we have 24 00:01:51,360 --> 00:01:54,000 Speaker 2: talked about insurance on many occasions over many years. 25 00:01:54,160 --> 00:01:57,680 Speaker 3: I love insurance. I love insurance because it has all 26 00:01:57,760 --> 00:02:01,720 Speaker 3: of the global forces of economics, all of the incentives, 27 00:02:01,800 --> 00:02:05,080 Speaker 3: the risk. It all boils down to one industry that 28 00:02:05,160 --> 00:02:06,440 Speaker 3: writes in very. 29 00:02:06,280 --> 00:02:09,559 Speaker 2: Small type, the smallest, the finest of the finest of 30 00:02:09,959 --> 00:02:13,560 Speaker 2: and really, I think, I guess not overstating it to say, 31 00:02:13,600 --> 00:02:16,040 Speaker 2: insurance is a way of thinking about the world. 32 00:02:16,160 --> 00:02:16,359 Speaker 3: Right. 33 00:02:16,400 --> 00:02:19,280 Speaker 2: It's a worldview, and it says the world is not 34 00:02:19,680 --> 00:02:25,639 Speaker 2: fundamentally random and chaotic. Right, it's fundamentally predictable given enough data, 35 00:02:25,760 --> 00:02:29,200 Speaker 2: enough numbers. Right, the insurer says to you, show me 36 00:02:29,280 --> 00:02:32,639 Speaker 2: one million people, give me some basic information about who 37 00:02:32,639 --> 00:02:35,120 Speaker 2: they are, how old they are, et cetera. And I 38 00:02:35,120 --> 00:02:38,079 Speaker 2: can tell you to a pretty good approximation how many 39 00:02:38,120 --> 00:02:40,679 Speaker 2: of them will die next year. 40 00:02:41,120 --> 00:02:43,359 Speaker 3: And more than that, If an economy is going to grow, 41 00:02:43,360 --> 00:02:45,600 Speaker 3: if the world's going to grow, people have to take risks. 42 00:02:45,639 --> 00:02:47,880 Speaker 3: And that's scary. You know, you have a lot of hope, 43 00:02:47,919 --> 00:02:50,200 Speaker 3: a lot of optimism. You need someone in the room 44 00:02:50,240 --> 00:02:52,960 Speaker 3: to say, I did the math, this is exactly what 45 00:02:53,040 --> 00:02:55,240 Speaker 3: the risk is. And I can take some of that 46 00:02:55,360 --> 00:02:55,960 Speaker 3: risk from you. 47 00:02:56,200 --> 00:03:00,600 Speaker 2: Yeah, And truly, you couldn't have the modern world without it, right. 48 00:03:00,639 --> 00:03:04,200 Speaker 2: You couldn't have containerships with that insurance, you couldn't have satellites, 49 00:03:04,240 --> 00:03:06,560 Speaker 2: you couldn't have a concert at a stadium. None of 50 00:03:06,560 --> 00:03:10,600 Speaker 2: that would happen if you didn't have insurance. And clearly, 51 00:03:10,680 --> 00:03:14,880 Speaker 2: I'm going to say, clearly, the most interesting story in 52 00:03:14,919 --> 00:03:17,600 Speaker 2: the history of insurance is the story of Lloyd's Ready, 53 00:03:17,639 --> 00:03:20,880 Speaker 2: here we go, buckle up, as they say on the 54 00:03:20,960 --> 00:03:26,120 Speaker 2: AI podcast. It starts in the late sixteen hundreds in 55 00:03:26,160 --> 00:03:30,240 Speaker 2: London and at the time London's hottest clubs or coffee houses. 56 00:03:30,560 --> 00:03:33,480 Speaker 2: Coffee was new to London at the time, new to England, 57 00:03:33,720 --> 00:03:36,440 Speaker 2: just been there for a few decades. And you know, 58 00:03:36,480 --> 00:03:39,320 Speaker 2: it's this very exciting moment, right, it's the enlightenment. It's 59 00:03:39,320 --> 00:03:42,280 Speaker 2: the moment when ideas are starting to spread and to grow, 60 00:03:42,680 --> 00:03:44,720 Speaker 2: and coffee is really central to that. 61 00:03:44,960 --> 00:03:46,520 Speaker 3: Coffee and ideas they go together. 62 00:03:46,640 --> 00:03:50,560 Speaker 2: Hey. In fact, they called coffee houses penny universities because 63 00:03:51,240 --> 00:03:53,560 Speaker 2: for a penny. You could go to the coffee house, 64 00:03:53,720 --> 00:03:57,560 Speaker 2: get jacked on caffeine and learn from the people around you. 65 00:03:58,240 --> 00:04:00,840 Speaker 2: And different coffee houses kind of then as now, but 66 00:04:00,880 --> 00:04:05,080 Speaker 2: I think even more had different sort of intellectual specialties. 67 00:04:05,120 --> 00:04:07,720 Speaker 2: Like the clergy hung out at the coffee house near 68 00:04:07,760 --> 00:04:11,040 Speaker 2: Saint Paul's. There was one on Exchange Street where the 69 00:04:11,120 --> 00:04:14,960 Speaker 2: brokers hung out that actually ultimately became the London Stock Exchange. 70 00:04:15,040 --> 00:04:17,320 Speaker 2: There was another one where the guy's from the Royal Society, 71 00:04:17,400 --> 00:04:21,640 Speaker 2: including Isaac Newton was like inventing calculus, hungout. And then 72 00:04:22,039 --> 00:04:24,799 Speaker 2: down by the Thames, by the river, by the Customs House, 73 00:04:25,600 --> 00:04:27,920 Speaker 2: there was Edward Lloyd's coffee House. 74 00:04:28,120 --> 00:04:30,719 Speaker 3: Which was a place where captains could go right, and 75 00:04:30,720 --> 00:04:31,760 Speaker 3: people who worked on ships. 76 00:04:31,839 --> 00:04:34,279 Speaker 2: Yes, yes, naturally they just went there because that's the 77 00:04:34,320 --> 00:04:38,039 Speaker 2: coffee house in the neighborhood. Edward Lloyd was a you know, 78 00:04:38,080 --> 00:04:39,840 Speaker 2: he was not a merchant. He was not a shipping guy. 79 00:04:39,880 --> 00:04:44,040 Speaker 2: He was the son of a knitter. Framework knitter decided 80 00:04:44,080 --> 00:04:46,320 Speaker 2: to get into the coffee business in the sixteen eighties 81 00:04:46,680 --> 00:04:50,240 Speaker 2: and because of the location of his shop, it became 82 00:04:50,320 --> 00:04:54,840 Speaker 2: this central hub for shipping and it did well and 83 00:04:55,080 --> 00:04:56,960 Speaker 2: a few years after he opened the shop. He moved 84 00:04:57,040 --> 00:04:59,520 Speaker 2: up to Lombard Street, which is kind of like the 85 00:04:59,560 --> 00:05:02,200 Speaker 2: wall street of London. So now he's at the nexus 86 00:05:02,279 --> 00:05:06,320 Speaker 2: of shipping and finance, which is a good nexus to 87 00:05:06,400 --> 00:05:10,479 Speaker 2: be at in London for any time from sixteen eighty 88 00:05:10,560 --> 00:05:15,080 Speaker 2: to well, let's say nineteen fourteen. Right, it's what is 89 00:05:15,160 --> 00:05:19,240 Speaker 2: going to build the British economy finance plus shipping and 90 00:05:19,320 --> 00:05:20,359 Speaker 2: Lloyd's is right there. 91 00:05:20,200 --> 00:05:22,480 Speaker 3: And it's exactly what you need for the birth of insurance, 92 00:05:22,720 --> 00:05:24,640 Speaker 3: information and money coming together. 93 00:05:24,760 --> 00:05:29,680 Speaker 2: Yeah, and the information piece is really central and Edward 94 00:05:29,760 --> 00:05:32,479 Speaker 2: Lloyd saw it right. He wasn't an insurance guy, but 95 00:05:32,600 --> 00:05:36,719 Speaker 2: he understood that that's what people were coming for. His 96 00:05:36,800 --> 00:05:39,680 Speaker 2: coffee ask was just a room, you know, forty feet 97 00:05:39,720 --> 00:05:42,919 Speaker 2: by fifty feet, sand on the floor, big tables. But 98 00:05:43,920 --> 00:05:47,680 Speaker 2: Lloyd started consciously adding information to the mix. He actually 99 00:05:47,960 --> 00:05:52,240 Speaker 2: started publishing just a little newsletter we would call it today. 100 00:05:53,279 --> 00:05:55,240 Speaker 2: It had two sections. Here I wrote him down, say 101 00:05:55,520 --> 00:05:56,520 Speaker 2: read the names of the sections. 102 00:05:56,520 --> 00:06:00,719 Speaker 3: I don't okay. The sections are number one ships arrived 103 00:06:00,760 --> 00:06:03,919 Speaker 3: at and departed from several ports of England, as I 104 00:06:04,040 --> 00:06:08,440 Speaker 3: have account of them in London. One domestic news and 105 00:06:08,480 --> 00:06:11,440 Speaker 3: account of what English shipping and foreign ships for England. 106 00:06:11,520 --> 00:06:12,960 Speaker 3: I hear of in foreign. 107 00:06:12,760 --> 00:06:15,200 Speaker 2: Ports, two foreign and I love that. Both of them 108 00:06:15,200 --> 00:06:16,840 Speaker 2: are like, I don't know, it's what I heard. 109 00:06:16,920 --> 00:06:19,799 Speaker 3: It's awesome. It's just what we think ships are coming. 110 00:06:20,120 --> 00:06:24,000 Speaker 2: A few decades later it morphs into something called Lloyd's List, 111 00:06:24,839 --> 00:06:27,599 Speaker 2: which is in fact still published today. You can go 112 00:06:27,640 --> 00:06:30,159 Speaker 2: to Lloyd'slist dot com here do it. Tell me what 113 00:06:30,160 --> 00:06:30,520 Speaker 2: you're saying. 114 00:06:30,560 --> 00:06:33,479 Speaker 3: I'm pulling it up and not surprisingly, it's all about 115 00:06:33,480 --> 00:06:36,080 Speaker 3: the Middle East. Oh, just brought me up a dismiss 116 00:06:36,080 --> 00:06:38,760 Speaker 3: I don't want to register fall out. We'll ripple across 117 00:06:38,800 --> 00:06:42,240 Speaker 3: globe amid straight of Hormo's doomsday scenario. 118 00:06:42,520 --> 00:06:45,400 Speaker 2: So this is a version of an account of what 119 00:06:45,520 --> 00:06:49,640 Speaker 2: English shipping and foreign ships for England. Yeah, I hear 120 00:06:49,720 --> 00:06:52,479 Speaker 2: of in foreign Ports. So Lloyd's is bringing the information 121 00:06:52,760 --> 00:06:56,599 Speaker 2: into the coffee house. The merchants are there, the sailors 122 00:06:56,640 --> 00:07:00,400 Speaker 2: are there. He actually starts having auctions at the coffee house, 123 00:07:00,480 --> 00:07:03,799 Speaker 2: and the particular way they do it is is pretty delightful. 124 00:07:03,839 --> 00:07:07,880 Speaker 2: They called them candle auctions. So say they were auctioning 125 00:07:07,880 --> 00:07:09,760 Speaker 2: a ship, which was a thing they would auction off there, 126 00:07:10,040 --> 00:07:13,560 Speaker 2: they would light a candle the bidding would begin and 127 00:07:13,600 --> 00:07:16,960 Speaker 2: it would continue until the candle burned all the way 128 00:07:16,960 --> 00:07:19,240 Speaker 2: down and out, which is drama that I love. Like, 129 00:07:19,280 --> 00:07:20,679 Speaker 2: presumably everybody's looking. 130 00:07:20,560 --> 00:07:22,200 Speaker 3: At the candle, you know when it's going to end, 131 00:07:22,240 --> 00:07:23,960 Speaker 3: and they're trying to decide to come in at the 132 00:07:24,040 --> 00:07:26,640 Speaker 3: last minute with a slightly higher bid right before the 133 00:07:26,840 --> 00:07:27,480 Speaker 3: candle goes. 134 00:07:27,960 --> 00:07:29,640 Speaker 2: You wonder if somebody makes the bid, And it's like, 135 00:07:31,960 --> 00:07:34,360 Speaker 2: so Lloyd's is just a coffee house where these people 136 00:07:34,360 --> 00:07:40,000 Speaker 2: are hanging out, where there's information, and organically insurance starts 137 00:07:40,600 --> 00:07:43,880 Speaker 2: happening there. You know, a ship owner wants to protect 138 00:07:43,960 --> 00:07:46,640 Speaker 2: himself against loss if the ship sinks or gets captured 139 00:07:46,640 --> 00:07:47,280 Speaker 2: by pirates. 140 00:07:47,320 --> 00:07:50,400 Speaker 3: He tells his coffee mates, Oh, I have this great opportunity, 141 00:07:50,440 --> 00:07:53,680 Speaker 3: but you know, I don't know. If I lose this ship, 142 00:07:53,720 --> 00:07:55,640 Speaker 3: I lose everything. I'm probably not going to take this 143 00:07:55,800 --> 00:07:59,960 Speaker 3: tremendous financial opportunity. And someone comes in and says, well, 144 00:08:01,320 --> 00:08:03,720 Speaker 3: I can help insure your ship for you. Yes, I 145 00:08:03,760 --> 00:08:04,600 Speaker 3: can share the risks. 146 00:08:04,640 --> 00:08:07,040 Speaker 2: Yes, And insurance is a thing by this point, they're 147 00:08:07,080 --> 00:08:10,200 Speaker 2: not inventing it at Lloyd's. And the way it basically 148 00:08:10,200 --> 00:08:14,520 Speaker 2: works is someone with ship will write down on a 149 00:08:14,520 --> 00:08:17,360 Speaker 2: piece of paper, you know, the value of the ship 150 00:08:17,440 --> 00:08:21,800 Speaker 2: or the cargo, the nature of the voyage. That's basically it, right, 151 00:08:21,920 --> 00:08:24,680 Speaker 2: like what is it? How much is it worth? And 152 00:08:25,120 --> 00:08:27,800 Speaker 2: we'll take that piece of paper around to the tables 153 00:08:27,880 --> 00:08:31,720 Speaker 2: at Lloyd's where these you know, financiers merchants are hanging out, 154 00:08:32,520 --> 00:08:37,160 Speaker 2: and the merchants who want to insure part of the 155 00:08:37,280 --> 00:08:42,080 Speaker 2: risk will write their name underneath the slip, you know, 156 00:08:42,200 --> 00:08:45,360 Speaker 2: at the bottom of the description, and often they'll share it. 157 00:08:45,400 --> 00:08:47,400 Speaker 2: So like one merchant will be like, yeah, I'll take 158 00:08:47,520 --> 00:08:49,840 Speaker 2: ten percent. You know, it's like one thousand pounds worth 159 00:08:49,880 --> 00:08:53,000 Speaker 2: of stuff. All insure one hundred pounds of it for 160 00:08:53,160 --> 00:08:57,800 Speaker 2: some price. And so these guys, these merchants writing their 161 00:08:57,880 --> 00:09:02,480 Speaker 2: name underneath the description come to be known as under writers. 162 00:09:02,920 --> 00:09:08,240 Speaker 2: Isn't that nice? Or from the Italian subscribers love that 163 00:09:08,280 --> 00:09:12,880 Speaker 2: one yeah, yeah, subscribe or something that they may have 164 00:09:12,920 --> 00:09:14,680 Speaker 2: been using in Italy already. Right, this is not a 165 00:09:14,720 --> 00:09:19,240 Speaker 2: new system, and in fact, in fact, insuring ships more 166 00:09:19,280 --> 00:09:21,839 Speaker 2: generally is truly ancient. As far as I can tell, 167 00:09:21,880 --> 00:09:24,720 Speaker 2: the first kind of insurance was for shipping. It's been 168 00:09:24,760 --> 00:09:28,760 Speaker 2: around for thousands of years. By the time Lloyd's gets going. 169 00:09:29,480 --> 00:09:32,839 Speaker 2: The earliest insurance we know have comes from the Code 170 00:09:32,880 --> 00:09:37,480 Speaker 2: of Hammurabi No. Seventeen fifty BC Babylonian legal code. 171 00:09:37,559 --> 00:09:40,199 Speaker 3: This is the oldest we've gone, i think so far. 172 00:09:40,360 --> 00:09:42,120 Speaker 2: The one to be business history, the one to beat, 173 00:09:42,880 --> 00:09:47,440 Speaker 2: and that insurance was something known as bottomry, and the 174 00:09:47,480 --> 00:09:51,080 Speaker 2: way it worked was someones a Columba merchant could borrow 175 00:09:51,160 --> 00:09:54,440 Speaker 2: money to fund a sea voyage. So you borrow the money, whatever, 176 00:09:54,480 --> 00:09:57,680 Speaker 2: you buy your stuff, you hire your crew. If the 177 00:09:57,720 --> 00:10:00,400 Speaker 2: ship is lost, you don't have to pay back the money, 178 00:10:00,880 --> 00:10:03,920 Speaker 2: but if it returns successfully, then you pay it back 179 00:10:04,240 --> 00:10:09,839 Speaker 2: with interest, and that interest is effectively a premium. It's 180 00:10:09,840 --> 00:10:12,800 Speaker 2: what the insurance premium is. And it makes sense. It 181 00:10:12,840 --> 00:10:16,880 Speaker 2: makes sense that insurance should start with ships because ships 182 00:10:16,880 --> 00:10:22,080 Speaker 2: have really the two things you want for an insurance market. 183 00:10:22,679 --> 00:10:26,760 Speaker 2: One something that's so valuable that you'd be totally screwed 184 00:10:26,800 --> 00:10:31,200 Speaker 2: if it was lost, and two it's facing a risk 185 00:10:31,400 --> 00:10:35,800 Speaker 2: that is fundamentally quantifiable. There are lots of ships going on, 186 00:10:35,880 --> 00:10:38,680 Speaker 2: you know, similar voyages, so you can even before there's 187 00:10:38,760 --> 00:10:43,000 Speaker 2: mathematical probability invented, people have a rough sense of the 188 00:10:43,040 --> 00:10:46,440 Speaker 2: probability of loss. So if you multiply the value times 189 00:10:46,520 --> 00:10:49,559 Speaker 2: the probability of loss. That tells you basically how much 190 00:10:49,559 --> 00:10:51,559 Speaker 2: you should charge for your premium. That's what you need 191 00:10:51,600 --> 00:10:52,400 Speaker 2: for an insurance market. 192 00:10:52,400 --> 00:10:53,880 Speaker 3: And I'm going to add a third one, which is 193 00:10:54,000 --> 00:10:59,320 Speaker 3: there is a definable outcome ahah the ship arrives or 194 00:10:59,320 --> 00:11:02,199 Speaker 3: it does not, and then your contract can be exercised. 195 00:11:02,559 --> 00:11:04,880 Speaker 2: Yes, you don't need a bunch of lawyers saying there 196 00:11:04,960 --> 00:11:07,199 Speaker 2: is a ship where there is not a ship, although 197 00:11:07,320 --> 00:11:11,480 Speaker 2: that will emerge later. Yes, So Edward Lloyd sets up 198 00:11:11,480 --> 00:11:15,000 Speaker 2: shop because comes the hub of the marine insurance business 199 00:11:15,040 --> 00:11:17,320 Speaker 2: in London and sells a lot of coffee, sells so 200 00:11:17,440 --> 00:11:20,040 Speaker 2: much coffee. And I want to be clear because this 201 00:11:20,120 --> 00:11:22,800 Speaker 2: is one of the most interesting things about Lloyd's. Lloyd's 202 00:11:22,840 --> 00:11:27,439 Speaker 2: itself never becomes an insurance company. It's a marketplace, right, 203 00:11:27,520 --> 00:11:30,360 Speaker 2: It's a place where people selling insurance and people buying 204 00:11:30,400 --> 00:11:33,560 Speaker 2: insurance come together. Like think of a stock exchange, but 205 00:11:33,640 --> 00:11:36,960 Speaker 2: for insurance. That's what it is and what it always 206 00:11:37,040 --> 00:11:42,480 Speaker 2: will be. Edward Lloyd died in seventeen thirteen. Coffeehouse passed 207 00:11:42,480 --> 00:11:45,600 Speaker 2: down through his sort of family, through various owners and 208 00:11:46,559 --> 00:11:49,520 Speaker 2: over the years, over the decades in the seventeen hundred, 209 00:11:49,600 --> 00:11:53,800 Speaker 2: something really interesting happened to the insurance market at Lloyd's, 210 00:11:53,800 --> 00:11:57,280 Speaker 2: and that is it went from being this useful service 211 00:11:57,400 --> 00:12:01,720 Speaker 2: insurance to being a market for rampant speculation. 212 00:12:01,960 --> 00:12:05,119 Speaker 3: Almost like this happens anytime there's a market, but go on, yes. 213 00:12:04,960 --> 00:12:08,040 Speaker 2: Yes, which is kind of reassuring. Right, everybody's like, oh 214 00:12:08,040 --> 00:12:11,240 Speaker 2: the world today. No. In fact, in the seventeen hundreds, 215 00:12:11,280 --> 00:12:16,040 Speaker 2: at Lloyd's, people start taking out insurance policies on voyages 216 00:12:16,040 --> 00:12:18,880 Speaker 2: where they have no financial stake. They're just sitting there 217 00:12:18,880 --> 00:12:21,600 Speaker 2: to be like, oh, that guy's ship it's finished. 218 00:12:22,200 --> 00:12:25,480 Speaker 3: I saw a drunk captain Gota, I'm taking out insurance 219 00:12:25,520 --> 00:12:26,240 Speaker 3: on that guy. 220 00:12:26,600 --> 00:12:31,080 Speaker 2: They even start taking out life insurance policies on random people, 221 00:12:31,120 --> 00:12:35,080 Speaker 2: like some guy on trial for treason. They'll basically be 222 00:12:35,080 --> 00:12:37,640 Speaker 2: betting that he's found guilty. 223 00:12:37,880 --> 00:12:39,680 Speaker 3: And they invented calci and polymarket. 224 00:12:39,960 --> 00:12:43,480 Speaker 2: Yes, prediction markets, right, yes, we call this prediction markets today. 225 00:12:43,520 --> 00:12:48,080 Speaker 2: And interestingly, everybody is like, oh, this because the world 226 00:12:48,160 --> 00:12:50,800 Speaker 2: is so bad today, everything is so financialized now, No, 227 00:12:51,280 --> 00:12:54,400 Speaker 2: the world has been kind of gross and financialized for 228 00:12:54,480 --> 00:12:58,320 Speaker 2: three hundred years. Actually more. We recently did a prediction 229 00:12:58,400 --> 00:13:01,240 Speaker 2: market story and it actually goes back even farther. 230 00:13:01,640 --> 00:13:03,839 Speaker 3: There are people who argue that what was happening in 231 00:13:03,880 --> 00:13:07,360 Speaker 3: the coffee shop may have some positive effects. If someone 232 00:13:07,440 --> 00:13:09,440 Speaker 3: knows the captain is drunk, goes and takes out a 233 00:13:09,440 --> 00:13:12,960 Speaker 3: policy on him, you're at least sharing information. That is information, 234 00:13:13,040 --> 00:13:15,320 Speaker 3: and that's what you're in the coffee shop for. So 235 00:13:15,360 --> 00:13:17,680 Speaker 3: that's the pro prediction markets argument. 236 00:13:17,760 --> 00:13:21,160 Speaker 2: That's fair. There are lots of people today and then 237 00:13:21,440 --> 00:13:25,200 Speaker 2: who say it's just gross and bad and not doing 238 00:13:25,200 --> 00:13:28,560 Speaker 2: what insurance is doing. And crucially, at Lloyd's, some of 239 00:13:28,600 --> 00:13:30,520 Speaker 2: the underwriters, some of the people who were doing their 240 00:13:30,559 --> 00:13:35,000 Speaker 2: business there, hated this prediction market thing and decided to 241 00:13:35,040 --> 00:13:38,160 Speaker 2: get out and create what would become the Lloyds. We 242 00:13:38,240 --> 00:14:04,319 Speaker 2: know that is after the break. So it's the seventeen 243 00:14:04,440 --> 00:14:08,120 Speaker 2: sixties and some of the underwriters at Lloyd's think the 244 00:14:08,160 --> 00:14:10,680 Speaker 2: whole prediction markets thing, I can call it that then, 245 00:14:11,240 --> 00:14:14,120 Speaker 2: is a bad law, and not just in a you know, 246 00:14:14,200 --> 00:14:16,640 Speaker 2: these degenerate gamblers are making us look bad kind of 247 00:14:16,720 --> 00:14:21,720 Speaker 2: way because of the nature of insurance. Right in a 248 00:14:21,760 --> 00:14:25,480 Speaker 2: normal business, you pay your money, you look at the merchandise, 249 00:14:25,560 --> 00:14:27,920 Speaker 2: it's fine, you walk away and that's the end of it. 250 00:14:28,320 --> 00:14:30,840 Speaker 2: But insurance is not like that. In insurance, you pay 251 00:14:30,880 --> 00:14:34,040 Speaker 2: your money and then you go away for a month, 252 00:14:34,200 --> 00:14:37,360 Speaker 2: six months, a year, and if your ship sinks, you 253 00:14:37,440 --> 00:14:40,480 Speaker 2: come back and then you have this giant claim. 254 00:14:40,720 --> 00:14:42,920 Speaker 3: It's a relationship. You have to be able to find 255 00:14:43,320 --> 00:14:46,160 Speaker 3: the underwriter after something goes wrong. 256 00:14:46,200 --> 00:14:48,760 Speaker 2: You have to trust. You have to trust that they're 257 00:14:48,800 --> 00:14:50,880 Speaker 2: going to be around and they will give you the money. 258 00:14:50,960 --> 00:14:55,160 Speaker 2: And so you know, reputation always has some value in business, 259 00:14:55,480 --> 00:15:02,000 Speaker 2: but in insurance, reputation is profoundly important. And so in 260 00:15:02,040 --> 00:15:04,960 Speaker 2: seventeen sixty nine, a bunch of underwriters who are worried 261 00:15:04,960 --> 00:15:09,680 Speaker 2: about their reputation decide to separate themselves from the gamblers 262 00:15:09,760 --> 00:15:14,160 Speaker 2: at Lloyd's breakaway to a new coffee house. They leave Lloyd's. 263 00:15:14,560 --> 00:15:17,240 Speaker 2: They set up a new coffee shop that they call 264 00:15:18,560 --> 00:15:19,360 Speaker 2: New Lloyds. 265 00:15:19,680 --> 00:15:22,920 Speaker 3: Wow three L's. So they're first in the phone book. 266 00:15:23,160 --> 00:15:27,320 Speaker 2: L L triple A. Lloyd's insurance is like Raise. Remember 267 00:15:27,400 --> 00:15:30,200 Speaker 2: Raised Pizza in New York? Yeah, it was original, Raise 268 00:15:30,360 --> 00:15:35,080 Speaker 2: still is famous Original Rays maybe famous Rays. I don't know. 269 00:15:35,400 --> 00:15:39,320 Speaker 2: The old Lloyds actually kind of atrophies disappeared. So New 270 00:15:39,400 --> 00:15:43,360 Speaker 2: Lloyd's just becomes Lloyd's and by the way, the sort 271 00:15:43,400 --> 00:15:46,520 Speaker 2: of prediction market type gambling that actually gets banned by law. 272 00:15:47,520 --> 00:15:50,400 Speaker 2: And then a couple of years after that initial split, 273 00:15:51,360 --> 00:15:54,280 Speaker 2: seventy nine I believe it's seventy nine of these merchants 274 00:15:54,280 --> 00:15:57,400 Speaker 2: and underwriters who've gone to start new Lloyds, they take 275 00:15:57,400 --> 00:16:01,240 Speaker 2: an even more important step. They decide, like, we're not 276 00:16:01,480 --> 00:16:03,800 Speaker 2: just a bunch of people who happen to work in 277 00:16:03,840 --> 00:16:06,840 Speaker 2: the same room in the same coffee shop. We are 278 00:16:06,880 --> 00:16:10,080 Speaker 2: something more than that, not exactly a company. We don't 279 00:16:10,320 --> 00:16:13,880 Speaker 2: work for some boss, but we are what we're an 280 00:16:13,960 --> 00:16:16,320 Speaker 2: association where you know, they come to be known later 281 00:16:16,360 --> 00:16:20,360 Speaker 2: as the Society of Lloyd's. And so they create a 282 00:16:20,360 --> 00:16:22,960 Speaker 2: set of rules that they all agreed to abide by, 283 00:16:23,920 --> 00:16:26,840 Speaker 2: and they actually have a leader who emerges at this time, 284 00:16:27,360 --> 00:16:29,840 Speaker 2: not a boss because they don't have a boss, but 285 00:16:29,880 --> 00:16:32,880 Speaker 2: a guy who's clearly kind of bringing them together, making 286 00:16:32,920 --> 00:16:35,160 Speaker 2: them something more than a bunch of people who happen 287 00:16:35,200 --> 00:16:38,040 Speaker 2: to work in the same room. Like this guy is 288 00:16:38,880 --> 00:16:40,600 Speaker 2: I was going to say, is the first key figure 289 00:16:40,640 --> 00:16:42,080 Speaker 2: in the story of Lloyd's, but I guess Lloyd was 290 00:16:42,120 --> 00:16:43,880 Speaker 2: the first key figure, so he's the second key figure. 291 00:16:43,920 --> 00:16:48,360 Speaker 2: His name is John Julius Engerstein. His name was my 292 00:16:48,440 --> 00:16:52,520 Speaker 2: name too, and whatever you got. John Julius Engerstein was 293 00:16:52,520 --> 00:16:55,840 Speaker 2: born in Saint Petersburg, Russia, moved to London as a teenager, 294 00:16:55,960 --> 00:16:59,040 Speaker 2: started hanging out at Lloyd's, doing a little underwriting on 295 00:16:59,120 --> 00:17:03,840 Speaker 2: the side, as people did. And John Julius Engerstein was 296 00:17:04,560 --> 00:17:08,040 Speaker 2: very good at pricing risk, which is the essential skill 297 00:17:08,119 --> 00:17:08,760 Speaker 2: for an underwrite. 298 00:17:08,880 --> 00:17:10,959 Speaker 3: Do we know why was he better at math? 299 00:17:11,760 --> 00:17:11,840 Speaker 1: No? 300 00:17:12,159 --> 00:17:14,000 Speaker 2: Don't No, just know that he kept getting it right 301 00:17:14,000 --> 00:17:17,400 Speaker 2: to the point where the policies he wrote became known 302 00:17:17,480 --> 00:17:21,480 Speaker 2: as Julian's gold standard. Yeah, like a brand, and everybody 303 00:17:21,480 --> 00:17:23,240 Speaker 2: else was eager to get in on them. You know, 304 00:17:23,320 --> 00:17:26,600 Speaker 2: underwriters would share risks. So he actually started this thing 305 00:17:26,600 --> 00:17:28,560 Speaker 2: at Lloyds where there would be a lead underwriter, the 306 00:17:28,600 --> 00:17:31,399 Speaker 2: first person who underwrote it would set the premium and 307 00:17:31,400 --> 00:17:33,320 Speaker 2: then everybody else would just be in or out. 308 00:17:33,520 --> 00:17:36,280 Speaker 3: Yeah, And if John Julius is your lead underwriter, you're like, 309 00:17:36,320 --> 00:17:37,040 Speaker 3: this is easy money. 310 00:17:37,119 --> 00:17:38,840 Speaker 2: This is easy money. He knows how to price risk. 311 00:17:39,280 --> 00:17:42,720 Speaker 2: And Lloyd's is rising in stature now and they decide, 312 00:17:42,880 --> 00:17:45,760 Speaker 2: you know, Coffeehouse isn't going to do it, and so 313 00:17:45,800 --> 00:17:47,960 Speaker 2: they all put up one hundred pounds to find a 314 00:17:47,960 --> 00:17:52,240 Speaker 2: new location, and they move to the Royal Exchange, not 315 00:17:52,320 --> 00:17:55,720 Speaker 2: a stock exchange, but kind of a commercial building. Queen 316 00:17:55,840 --> 00:17:58,520 Speaker 2: Elizabeth had opened it a couple hundred years before this. 317 00:17:59,720 --> 00:18:04,000 Speaker 2: And this is where Lloyd's becomes, you know, the Lloyd's 318 00:18:04,000 --> 00:18:07,120 Speaker 2: of London that we know, the place where everybody goes 319 00:18:07,160 --> 00:18:09,680 Speaker 2: to ensure a ship or the goods on a ship. 320 00:18:10,000 --> 00:18:11,160 Speaker 3: You had to bring your own coffee. 321 00:18:12,480 --> 00:18:13,959 Speaker 2: I don't know if you had to bring your own coffee. 322 00:18:13,960 --> 00:18:15,679 Speaker 2: There might have been a kitchen there. Don't know about that. 323 00:18:16,400 --> 00:18:21,800 Speaker 2: And now Lloyd's is highbrow. It has become highbrow. Angerstein 324 00:18:22,359 --> 00:18:25,080 Speaker 2: is friends with Nelson, the naval hero, with Pitt the 325 00:18:25,160 --> 00:18:29,840 Speaker 2: Prime Minister. He collects Renaissance paintings. In fact, after he dies, 326 00:18:30,119 --> 00:18:32,359 Speaker 2: a bunch of his paintings become like the nucleus of 327 00:18:32,440 --> 00:18:37,119 Speaker 2: the National Gallery in London, and he has John Julius 328 00:18:37,160 --> 00:18:41,600 Speaker 2: Hengerstein has this one moment that his signature moment, and 329 00:18:41,640 --> 00:18:45,520 Speaker 2: it comes in seventeen ninety nine when there's a financial 330 00:18:45,560 --> 00:18:50,320 Speaker 2: crisis in Hamburg what is not yet Germany and London 331 00:18:50,359 --> 00:18:53,760 Speaker 2: bankers want to step in to prevent the crisis from spreading. 332 00:18:53,800 --> 00:18:56,800 Speaker 2: There's no central banks really yet at this point, and 333 00:18:56,840 --> 00:18:59,639 Speaker 2: so the bankers get together a bunch of gold and 334 00:18:59,720 --> 00:19:02,200 Speaker 2: silver that they're going to lend to the bankers in 335 00:19:02,240 --> 00:19:05,200 Speaker 2: Hamburg to try and stop the crisis there. The gold 336 00:19:05,240 --> 00:19:09,159 Speaker 2: and silver is loaded onto a ship called Hmsluten that 337 00:19:09,240 --> 00:19:12,040 Speaker 2: had been one from the French earlier fun. 338 00:19:12,119 --> 00:19:16,040 Speaker 3: It's a ship, it's loaded with gold and silver, setting 339 00:19:16,040 --> 00:19:16,679 Speaker 3: out on the high. 340 00:19:16,560 --> 00:19:18,000 Speaker 2: Seat, setting out on the high seats. So we know 341 00:19:18,040 --> 00:19:19,880 Speaker 2: what's going to happen, and we know what's gonna happen first. 342 00:19:19,920 --> 00:19:22,159 Speaker 2: What's gonna happen first is there's one place you go 343 00:19:22,280 --> 00:19:25,680 Speaker 2: before your ship full of gold and silver leaves port. Yes, 344 00:19:25,880 --> 00:19:28,800 Speaker 2: Lloyd's to buy insurance for all that gold and silver. 345 00:19:29,920 --> 00:19:33,159 Speaker 2: John Julius Engerstein is the lead under rider. The ship 346 00:19:33,400 --> 00:19:34,320 Speaker 2: set sail. 347 00:19:34,800 --> 00:19:35,919 Speaker 3: Riding low in the water. 348 00:19:36,080 --> 00:19:39,320 Speaker 2: It's filled with gold and silver, and it does hit 349 00:19:39,359 --> 00:19:42,080 Speaker 2: a storm off the coast of the Netherlands, crashes into 350 00:19:42,080 --> 00:19:46,320 Speaker 2: a sandbank. It sinks. Captain Lancelot Skinner goes down with 351 00:19:46,359 --> 00:19:49,120 Speaker 2: the ship of more than two hundred people on board. 352 00:19:49,119 --> 00:19:53,120 Speaker 2: Only one survives. Wow And a few weeks later John 353 00:19:53,200 --> 00:19:56,880 Speaker 2: Julius Engerstein and the other underwriters pay the claim in 354 00:19:56,960 --> 00:20:01,320 Speaker 2: full that is brand management. That is brand management. Now 355 00:20:01,359 --> 00:20:04,679 Speaker 2: you have a ship full of gold and silver, and 356 00:20:04,720 --> 00:20:06,520 Speaker 2: it's not like out in the middle of the ocean. 357 00:20:06,560 --> 00:20:09,840 Speaker 2: It's you know, off the coast of the Netherlands. You 358 00:20:09,880 --> 00:20:12,680 Speaker 2: can see it. And so of course are always going 359 00:20:12,680 --> 00:20:15,280 Speaker 2: out there being like, I want some of that gold. 360 00:20:15,320 --> 00:20:18,360 Speaker 2: And occasionally they managed to, you know, get a little bit, 361 00:20:18,400 --> 00:20:21,800 Speaker 2: but there's no great recovery. But they get the ship's bell. 362 00:20:22,840 --> 00:20:24,680 Speaker 2: The ship's bell, you know, it's kind of cool. It's 363 00:20:24,680 --> 00:20:26,359 Speaker 2: not a fortune, but it's cool. And they send the 364 00:20:26,400 --> 00:20:29,520 Speaker 2: bell back to Lloyd's and Lloyd's puts the bell in 365 00:20:29,560 --> 00:20:31,640 Speaker 2: the middle of the room, the underwriting room. 366 00:20:31,800 --> 00:20:33,960 Speaker 3: And is this a reminder to like, always get the 367 00:20:33,960 --> 00:20:35,240 Speaker 3: price of insurance, right? 368 00:20:35,520 --> 00:20:38,680 Speaker 2: It is a reminder and a reminder that Lloyd's pays 369 00:20:38,840 --> 00:20:42,800 Speaker 2: its claims. But they do also give it a functional role, 370 00:20:43,119 --> 00:20:46,960 Speaker 2: and that was this. When news came in about an 371 00:20:47,000 --> 00:20:50,040 Speaker 2: overdue ship that had been insured by Lloyd's, they would 372 00:20:50,119 --> 00:20:54,040 Speaker 2: ring the bell. One ring meant the ship had sunk, 373 00:20:54,800 --> 00:20:58,320 Speaker 2: two rings meant it had arrived safely. So you can 374 00:20:58,359 --> 00:21:00,879 Speaker 2: imagine the drama, right, like they ring it once and 375 00:21:00,880 --> 00:21:09,359 Speaker 2: everybody pauses, Hurrah, huzzah, and they really feel the huszak 376 00:21:09,359 --> 00:21:11,280 Speaker 2: because it means they don't have to pay the claim. 377 00:21:11,600 --> 00:21:12,800 Speaker 3: Not that not good people. 378 00:21:12,920 --> 00:21:15,879 Speaker 2: But I think it's also important because it is really 379 00:21:15,920 --> 00:21:19,640 Speaker 2: showing us how Lloyd's is self mythologizing, as you said, 380 00:21:19,720 --> 00:21:23,000 Speaker 2: managing their brand. We would say today it's Lloyd's consciously 381 00:21:23,040 --> 00:21:27,199 Speaker 2: creating the legend of Lloyd's. And in fact Lloyd's is unique. 382 00:21:27,240 --> 00:21:30,880 Speaker 2: I mean, there are you know, the kinds of insurance 383 00:21:30,880 --> 00:21:33,520 Speaker 2: companies that are familiar to us today by this point, 384 00:21:33,560 --> 00:21:37,320 Speaker 2: but Lloyd's, this market where these underwriters are working side 385 00:21:37,400 --> 00:21:42,200 Speaker 2: by side, not working for an insurance company, is unique, 386 00:21:42,760 --> 00:21:45,440 Speaker 2: and it's kind of amazing that not only does it work, 387 00:21:45,800 --> 00:21:49,400 Speaker 2: but it comes to dominate marine insurance in this company 388 00:21:49,400 --> 00:21:52,119 Speaker 2: that's going to be the most important marine power on 389 00:21:52,160 --> 00:21:56,199 Speaker 2: the planet. So there is this one other part of 390 00:21:56,280 --> 00:22:01,000 Speaker 2: the lloyd story that was not mythologized, that was not told, 391 00:22:01,080 --> 00:22:04,000 Speaker 2: that was basically ignored for a long time, but it's 392 00:22:04,000 --> 00:22:06,359 Speaker 2: been getting a lot more attention recently, and that is 393 00:22:07,160 --> 00:22:10,240 Speaker 2: the slave trade. This era we're talking about, you know, 394 00:22:11,040 --> 00:22:13,879 Speaker 2: late seventeen hundred into the early eighteen hundreds was the 395 00:22:13,880 --> 00:22:17,280 Speaker 2: peak of the Transatlantic slave trade, and underwriters at Lloyd's 396 00:22:17,280 --> 00:22:20,520 Speaker 2: did sell insurance both on the ships and on the 397 00:22:20,560 --> 00:22:24,640 Speaker 2: lives of the enslaved people themselves, and a few years 398 00:22:24,640 --> 00:22:28,480 Speaker 2: ago Lloyd's commissioned an academic study of this history. They're like, 399 00:22:28,520 --> 00:22:30,080 Speaker 2: you know, we don't want to ignore it anymore, we 400 00:22:30,080 --> 00:22:33,359 Speaker 2: want to talk about it. They formally apologized for their 401 00:22:33,440 --> 00:22:36,480 Speaker 2: role in the slave trade, and there were some people 402 00:22:36,480 --> 00:22:39,040 Speaker 2: who said, that's fine, it's good that you're doing this, 403 00:22:39,520 --> 00:22:43,520 Speaker 2: but really what you should do is give back the 404 00:22:43,640 --> 00:22:46,359 Speaker 2: money you made from ensuring slave ships. 405 00:22:46,440 --> 00:22:48,600 Speaker 3: And they did make money off this, they did. 406 00:22:48,440 --> 00:22:51,119 Speaker 2: Make money off it, but of course Lloyd's has not 407 00:22:51,680 --> 00:22:55,000 Speaker 2: given back any of that money. We'll be back in 408 00:22:55,080 --> 00:23:23,400 Speaker 2: just a minute. We're back Bong Bong the late eighteen hundreds, 409 00:23:24,640 --> 00:23:27,280 Speaker 2: and the next big thing is about to happen at Lloyd's, 410 00:23:28,119 --> 00:23:32,120 Speaker 2: and that is going beyond shipping, going into what they 411 00:23:32,119 --> 00:23:36,160 Speaker 2: call the non marine business. And there is a guy, 412 00:23:36,440 --> 00:23:38,840 Speaker 2: there is one underwriter who really takes the lead here 413 00:23:39,200 --> 00:23:45,280 Speaker 2: and his name most British name ever, Cuthbert eden Heth. 414 00:23:45,359 --> 00:23:47,480 Speaker 3: Cuthbert eden Heath. 415 00:23:47,240 --> 00:23:49,840 Speaker 2: Son of an admiral, of course, starts working at Lloyd's 416 00:23:49,840 --> 00:23:53,080 Speaker 2: at age eighteen, becomes an underwriter at twenty one, and 417 00:23:53,119 --> 00:23:56,240 Speaker 2: his first big moment comes in eighteen eighty nine when 418 00:23:56,240 --> 00:23:59,000 Speaker 2: he's thirty years old and there is an epidemic of 419 00:23:59,160 --> 00:24:01,119 Speaker 2: burglaries in London. 420 00:24:02,080 --> 00:24:07,800 Speaker 3: Burglaries so back then burglars actually did wear the black 421 00:24:07,960 --> 00:24:09,480 Speaker 3: masks and the striped shirt. 422 00:24:09,520 --> 00:24:11,680 Speaker 2: They have a big sack of course, going to be 423 00:24:11,720 --> 00:24:13,480 Speaker 2: a dollar, it would be the l right, it'd be 424 00:24:13,520 --> 00:24:14,160 Speaker 2: the pound sign. 425 00:24:14,240 --> 00:24:16,600 Speaker 3: We had a big sack filled with candlesticks. 426 00:24:16,880 --> 00:24:18,440 Speaker 2: And then people would wake up and they'd be wearing 427 00:24:18,440 --> 00:24:21,199 Speaker 2: the little cap and they'd be like, Martha, we've been 428 00:24:21,320 --> 00:24:26,200 Speaker 2: robbed burgled. So at the time you could buy fire 429 00:24:26,240 --> 00:24:28,280 Speaker 2: insurance on your house that had actually been around for 430 00:24:28,320 --> 00:24:31,920 Speaker 2: a few hundred years, but there was no insurance policy 431 00:24:31,960 --> 00:24:35,600 Speaker 2: that would cover burglary. And one day in eighteen eighty nine, 432 00:24:35,640 --> 00:24:40,600 Speaker 2: a broker says to Cuthbert Heath, everybody's afraid of burglary 433 00:24:40,680 --> 00:24:43,520 Speaker 2: right now? Could you write an insurance policy that covers that? 434 00:24:45,359 --> 00:24:46,880 Speaker 3: And Heath's answer is famous. 435 00:24:47,200 --> 00:24:52,600 Speaker 2: He says why not? Why not? This becomes his motto. 436 00:24:52,960 --> 00:24:53,320 Speaker 2: Why not? 437 00:24:54,480 --> 00:24:56,800 Speaker 3: How did he know how to price that? They had 438 00:24:56,920 --> 00:25:01,280 Speaker 3: two hundred years of marine information, You said, how important 439 00:25:01,280 --> 00:25:03,200 Speaker 3: information is, But how do you figure out when something 440 00:25:03,240 --> 00:25:04,879 Speaker 3: new is happening like this burglary. 441 00:25:05,840 --> 00:25:10,320 Speaker 2: So Cuthbert Heath had a more nerdy motto than why not, 442 00:25:10,400 --> 00:25:13,639 Speaker 2: which I really like, and that is, any risk is 443 00:25:13,680 --> 00:25:17,359 Speaker 2: insurable at the right price, at the right price. What 444 00:25:17,440 --> 00:25:20,639 Speaker 2: this is telling us is he understood this issue that 445 00:25:20,680 --> 00:25:23,800 Speaker 2: you're raising. He understood that insurance is fundamentally about data, 446 00:25:24,560 --> 00:25:27,040 Speaker 2: and he was really a data guy in a lot 447 00:25:27,119 --> 00:25:29,760 Speaker 2: of ways. He starts selling all kinds of insurance policy, 448 00:25:29,840 --> 00:25:33,560 Speaker 2: and his big breakthrough is combining that why not attitude, 449 00:25:34,240 --> 00:25:36,840 Speaker 2: you know, swashbuckling, sure, I'll sell this, I'll sell that, 450 00:25:37,119 --> 00:25:42,920 Speaker 2: with this very nerdy dedication to data. So like, for example, 451 00:25:44,080 --> 00:25:49,199 Speaker 2: people wanted catastrophe insurance basically in the Caribbean, where hurricanes 452 00:25:49,359 --> 00:25:52,760 Speaker 2: periodically sweep through and wipe everything out. Why not, he says, 453 00:25:53,520 --> 00:25:58,199 Speaker 2: And he studies one hundred years of historical hurricane maps 454 00:25:58,600 --> 00:26:01,800 Speaker 2: to get the data. There's a smallpox outbreak in London 455 00:26:02,119 --> 00:26:06,200 Speaker 2: and people want smallpox insurance, and he says, okay, I'll 456 00:26:06,200 --> 00:26:09,720 Speaker 2: sell you smallpox insurance and if you get vaccinated, you 457 00:26:09,760 --> 00:26:12,920 Speaker 2: get seventy five percent off because he understand too how 458 00:26:12,960 --> 00:26:14,920 Speaker 2: profoundly vaccination reduces risk. 459 00:26:15,760 --> 00:26:20,760 Speaker 3: Is this also the rise of a fear about things 460 00:26:20,840 --> 00:26:23,080 Speaker 3: that are rare in the world. Because we have a 461 00:26:23,160 --> 00:26:27,240 Speaker 3: lot more newspapers and communication, you're learning about a lot 462 00:26:27,240 --> 00:26:29,240 Speaker 3: more bad things that can happen in the world, like 463 00:26:29,440 --> 00:26:30,760 Speaker 3: a spate of burglaries. 464 00:26:30,920 --> 00:26:34,040 Speaker 2: That's an interesting question. I mean, maybe that, or maybe 465 00:26:34,119 --> 00:26:37,960 Speaker 2: it's more of a belief in probability, right. I feel 466 00:26:37,960 --> 00:26:40,160 Speaker 2: like if you go, you know, back a fair bit 467 00:26:40,200 --> 00:26:44,400 Speaker 2: of time, people didn't think of the world as probabilistic. 468 00:26:44,680 --> 00:26:47,200 Speaker 2: They thought of it as God's will that something will 469 00:26:47,200 --> 00:26:50,199 Speaker 2: happen or won't happen, and so the notion that you 470 00:26:50,240 --> 00:26:54,480 Speaker 2: could ensure against risks would have been odd. Maybe it's 471 00:26:54,480 --> 00:26:57,119 Speaker 2: also there's more people with money. The world is becoming 472 00:26:57,119 --> 00:27:01,359 Speaker 2: more financialized. Right by this point, the industrial revolution in 473 00:27:01,400 --> 00:27:04,520 Speaker 2: England has happened. Wages have risen, so people have money 474 00:27:04,560 --> 00:27:07,000 Speaker 2: for things like insurance. These could all be reasons it's happening. 475 00:27:07,040 --> 00:27:09,040 Speaker 3: You have a house full of candlesticks, you want to 476 00:27:09,040 --> 00:27:10,440 Speaker 3: get the fire insurance. 477 00:27:10,000 --> 00:27:13,639 Speaker 2: And that's right. You have a mud hut. It's not 478 00:27:13,680 --> 00:27:15,720 Speaker 2: so high on your list. Let me give you a 479 00:27:15,800 --> 00:27:21,600 Speaker 2: couple more. Cuthbert Heath great moments in insurance. World War One, 480 00:27:22,160 --> 00:27:25,399 Speaker 2: everybody is terrified that German zeppelins are going to float 481 00:27:25,400 --> 00:27:30,800 Speaker 2: over the Channel and bomb London, and so Heath does 482 00:27:30,840 --> 00:27:32,760 Speaker 2: some math. He's like, well, I could sell you insurance 483 00:27:32,760 --> 00:27:35,520 Speaker 2: and gets that and he's like, well, let's see. You know, 484 00:27:35,880 --> 00:27:39,440 Speaker 2: here's about how many airship attacks Germany could mount. Here's 485 00:27:39,440 --> 00:27:42,240 Speaker 2: how many bombs a zeppelin can carry, Here's how much 486 00:27:42,320 --> 00:27:45,960 Speaker 2: damage each bomb can do. But obviously this is not 487 00:27:46,040 --> 00:27:48,560 Speaker 2: a data rich project. There's not hundreds of years of data. 488 00:27:48,560 --> 00:27:49,800 Speaker 2: So it's like, okay, that's an estimate. 489 00:27:49,920 --> 00:27:50,320 Speaker 3: I'm going to. 490 00:27:50,359 --> 00:27:53,359 Speaker 2: Multiply that by six, give myself some wiggle room, and 491 00:27:53,400 --> 00:27:54,080 Speaker 2: that's the premium. 492 00:27:54,160 --> 00:27:55,200 Speaker 3: Absolutely. Yeah. 493 00:27:55,280 --> 00:28:01,479 Speaker 2: The most famous kind of insurance that Heath sold was 494 00:28:01,680 --> 00:28:05,160 Speaker 2: earthquake insurance. And to figure out how to price earthquake 495 00:28:05,200 --> 00:28:08,440 Speaker 2: insurance he did a few things. He paid people in 496 00:28:08,440 --> 00:28:12,360 Speaker 2: India to drop maps of historic earthquakes. He gathered data 497 00:28:12,400 --> 00:28:16,240 Speaker 2: from South America from North America. He created this handwritten 498 00:28:16,480 --> 00:28:19,880 Speaker 2: earthquake book that I think Lloyd still has in the vault. 499 00:28:19,920 --> 00:28:23,320 Speaker 3: So he knows the sort of average damage that it does, 500 00:28:23,440 --> 00:28:24,679 Speaker 3: how often it might happen. 501 00:28:24,840 --> 00:28:28,000 Speaker 2: Aware, right, earthquake says we know are not randomly distributed 502 00:28:28,040 --> 00:28:31,960 Speaker 2: around the globe, and there is a big moment for 503 00:28:32,200 --> 00:28:35,159 Speaker 2: Cuthbert Heath. You can guess it right. He's working in 504 00:28:35,240 --> 00:28:38,840 Speaker 2: late eighteen hundreds, early nineteen hundred selling earthquake insurance. So 505 00:28:38,840 --> 00:28:40,560 Speaker 2: a moment we've already talked about on the show. 506 00:28:40,720 --> 00:28:44,440 Speaker 3: We have nineteen oh six, the San Francisco earthquake. We've 507 00:28:44,480 --> 00:28:48,480 Speaker 3: referred to it because it disrupted the railroads, disrupted financial 508 00:28:48,520 --> 00:28:50,000 Speaker 3: markets hugely, led. 509 00:28:49,800 --> 00:28:52,240 Speaker 2: To the panic of nineteen oh seven. Yeah, so you know, 510 00:28:52,320 --> 00:28:58,080 Speaker 2: the earthquake itself lasted for one minute or so, did 511 00:28:58,080 --> 00:29:00,640 Speaker 2: a lot of damage, but things got much worse over 512 00:29:00,680 --> 00:29:03,720 Speaker 2: the next couple of days after that because of the fires. Right, 513 00:29:03,760 --> 00:29:07,560 Speaker 2: fires started, the pipes were broken, and fires just consumed 514 00:29:07,600 --> 00:29:11,440 Speaker 2: the city. In the end, something like eighty percent of 515 00:29:11,600 --> 00:29:15,280 Speaker 2: sand Go is destroyed. Twenty eight thousand buildings were destroyed. 516 00:29:16,520 --> 00:29:20,040 Speaker 2: So it's a total catastrophe. It's a profound human tragedy. 517 00:29:20,680 --> 00:29:23,960 Speaker 2: And from the point of view of an insurance company, 518 00:29:24,040 --> 00:29:30,160 Speaker 2: it's a rather complicated situation because some buildings had earthquake 519 00:29:30,200 --> 00:29:33,520 Speaker 2: insurance but not fire insurance. Some had fire insurance but 520 00:29:33,600 --> 00:29:36,440 Speaker 2: not earthquake. And if there's an earthquake and then your 521 00:29:36,440 --> 00:29:39,120 Speaker 2: house gets burned down by a fire, is it covered 522 00:29:39,360 --> 00:29:40,600 Speaker 2: if you don't have fire insurance. 523 00:29:40,600 --> 00:29:40,760 Speaker 1: Heah. 524 00:29:40,760 --> 00:29:44,080 Speaker 3: I remember after Hurricane Katrina, you might have had hurricane 525 00:29:44,120 --> 00:29:46,360 Speaker 3: insurance but not flood insurance. 526 00:29:47,080 --> 00:29:50,760 Speaker 2: And this is kind of why people hate insurance companies, right, Yeah, 527 00:29:50,840 --> 00:29:53,520 Speaker 2: you pay your premium year after year. 528 00:29:53,720 --> 00:29:55,520 Speaker 3: You think you're insured on certain things. 529 00:29:55,560 --> 00:29:58,280 Speaker 2: The bad thing happens, and then you go to the 530 00:29:58,280 --> 00:30:01,880 Speaker 2: insurer and they say, oh, look, actually on page eleven 531 00:30:02,160 --> 00:30:05,360 Speaker 2: it says, blah blah blah, sorry, we're not going to 532 00:30:05,400 --> 00:30:08,480 Speaker 2: give you any money. So this is happening in San Francisco. 533 00:30:08,560 --> 00:30:11,760 Speaker 2: After the earthquake. People are arguing with their insurance man 534 00:30:12,120 --> 00:30:15,640 Speaker 2: them are not paying claims or paying some of the claims. 535 00:30:16,280 --> 00:30:20,440 Speaker 2: And as this is happening, Cuthbert Heath sends a telegram 536 00:30:20,600 --> 00:30:23,360 Speaker 2: to his agent in San Francisco. I wrote it here, 537 00:30:23,400 --> 00:30:25,600 Speaker 2: read it. The telegram said, pay. 538 00:30:25,680 --> 00:30:30,760 Speaker 3: All our policyholders in full, irrespective of the terms of 539 00:30:30,800 --> 00:30:31,600 Speaker 3: their policies. 540 00:30:32,560 --> 00:30:36,960 Speaker 2: Irrespective of the terms. He's saying, don't read the fine print, 541 00:30:37,440 --> 00:30:41,640 Speaker 2: just pay. Just give people money to rebuild their houses, 542 00:30:41,680 --> 00:30:43,360 Speaker 2: to rebuild the city of San Francisco. 543 00:30:43,480 --> 00:30:46,200 Speaker 3: Do not see this kind of telegram very often today? 544 00:30:46,840 --> 00:30:51,080 Speaker 2: No, it says, do not pay our policy alters irrespective 545 00:30:51,360 --> 00:30:55,040 Speaker 2: of the terms of their policies. And you know, it's 546 00:30:55,080 --> 00:30:57,400 Speaker 2: great that he did this, and it was great for Lloyd. 547 00:30:57,560 --> 00:31:02,640 Speaker 3: Sure. Sure, we talked about reputation is everything, and at 548 00:31:02,640 --> 00:31:07,360 Speaker 3: this moment this probably sealed the fame of Lloyd. It's 549 00:31:07,400 --> 00:31:11,640 Speaker 3: not just among shipowners and building owners, but worldwide. 550 00:31:12,200 --> 00:31:16,560 Speaker 2: Yes, people suddenly knew all around the world that Lloyd's 551 00:31:16,680 --> 00:31:24,520 Speaker 2: paid its claims. Next time on Business History, Part two 552 00:31:24,760 --> 00:31:29,960 Speaker 2: of the story of Lloyd's One Free Chel. In the 553 00:31:30,080 --> 00:31:36,600 Speaker 2: twentieth century, Lloyd's goes bananas. They ensure Rockstar's voices, they 554 00:31:36,680 --> 00:31:40,560 Speaker 2: ensure nuclear power plants, they ensure satellites, they ensure everything 555 00:31:40,560 --> 00:31:42,600 Speaker 2: that moves, they ensure lots of things that don't move. 556 00:31:43,160 --> 00:31:48,320 Speaker 2: And eventually all that ensuring bankrupt some of the richest 557 00:31:48,320 --> 00:31:50,760 Speaker 2: people in England, also some people who weren't that rich. 558 00:31:51,320 --> 00:31:55,000 Speaker 2: It almost takes down Lloyd's and almost blows up the 559 00:31:55,000 --> 00:31:55,880 Speaker 2: global economy. 560 00:31:57,400 --> 00:32:01,920 Speaker 3: Long Long Bong Bong. 561 00:32:02,480 --> 00:32:06,400 Speaker 2: Today's show was produced by Gabriel Hunter Chang and engineered 562 00:32:06,400 --> 00:32:09,760 Speaker 2: by Sarah Bruguier. Our video editor is Matt Nielsen. 563 00:32:10,040 --> 00:32:12,160 Speaker 3: Yes, we have videos on YouTube. 564 00:32:12,200 --> 00:32:16,280 Speaker 2: Our showrunner and editor is Ryan Dilley. I'm Jacob Goldstein 565 00:32:16,320 --> 00:32:16,680 Speaker 2: and I'm. 566 00:32:16,600 --> 00:32:19,600 Speaker 3: Robert Smith and you can email us at business History 567 00:32:20,040 --> 00:32:22,400 Speaker 3: at pushkin dot fm. 568 00:32:22,440 --> 00:32:25,560 Speaker 2: Thanks to everybody who's been emailing. We love them, we 569 00:32:25,640 --> 00:32:28,240 Speaker 2: talk about the emails, we're excited about them, so please 570 00:32:28,320 --> 00:32:30,040 Speaker 2: keep it up. Thanks for listening.