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Regulatory Regimes and Multinational Insurers before 1914

Published online by Cambridge University Press:  13 December 2011

Robin Pearson  and
Mikael Lönnborg
Robin Pearson
Affiliation:
ROBIN PEARSON is professor of economic history in the Department of History at the University of Hull in the United Kingdom.
Mikael Lönnborg
Affiliation:
MIKAEL LÖNNBORG is assistant professor in the Department of Social Sciences at the University College of Södertörnand the Department of Economic History in the Uppsala Centre for Business History, University of Uppsala, Sweden.
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Abstract

At the end of the twentieth century, the global diffusion of one important financial service, insurance, was encouraged by deregulation, but it also encountered difficulties where deregulation remained incomplete and where there were many nonregulatory barriers to entry. International insurance was already well developed before 1914. The growth in the global insurance trade, however, occurred against a background of increasing national regulation and fiscal burdens in many countries, making international business affordable only for the largest companies with the deepest reserves. This paper offers some preliminary estimates of the extent of the international insurance trade during the half-century before the First World War, and assesses the impact of national regulatory regimes and nonregulatory factors on the development of this business. The analysis is placed within the framework of modern theories of regulation and multinational enterprise.

Type
Articles
Information
Business History Review , Volume 82 , Issue 1 , Spring 2008 , pp. 59 - 86
Copyright
Copyright © The President and Fellows of Harvard College 2008

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References

1 Worldwide insurance premiums amounted to US$3.4 trillion across 145 countries in 2005. Swiss Re, “World Insurance in 2005,” Sigma, no. 5 (2006).

2 Studies of international insurance have been hitherto largely confined to histories of individual companies or national markets. Exceptions include Wilkins, Mira, The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (Cambridge, Mass., 1970)Google Scholar; Pearson, Robin, “The Development of Reinsurance Markets in Europe during the Nineteenth Century,” Journal of European Economic History 24, no. 3 (1995): 557–71Google Scholar; Borscheid, Peter, “Vertrauensgewinn und Vertrauensverlust: Das Auslandsgeschaft der deutschen Versicherungswirtschaft 1870-1945,” Vierteljahrschrift für Sozial und Wirtschaftsgeschichte 88, no. 4 (2001): 311–45Google Scholar; Umbach, Kai, “Die Position deutscher Transport versicherer auf dem Weltmarkt 1880-1914,” Vierteljahrschrift für Sozial und Wirtschaftsgeschichte 94, no. 4 (2006): 413–37Google Scholar. See also several of the contributions to Borscheid, Peter and Pearson, Robin, eds., Internationalisation and Globalisation of the Insurance Industry in the Nineteenth and Twentieth Centuries (Marburg, 2007)Google Scholar.

3 Mira Wilkins has shown the way with her analysis of U.S. life-insurance companies abroad before 1914, but there is much more to be done. Wilkins, Emergence of Multinational Enterprise, 65. See her comments in “Multinational Enterprise in Insurance: An Historical Overview,” in Internationalisation and Globalisation of the Insurance Industry, eds. Borscheid and Pearson, 4-26.

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5 There were, for example, eleven German transport insurers in Sweden in 1893, fourteen in Austria in 1913, seventeen in Italy in 1912, nineteen in Denmark, and ten in Finland in 1903. In all these countries, native offices accounted for two-thirds or more of premiums by the decade before the First World War. Umbach, “Deutscher Transportversicherer.”

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15 Only three of the twenty-one markets moved across this threshold, namely, nonlife insurance in Norway, where the premium share of foreign companies increased from 23 percent in 1868 to 31 percent in 1875; and fire and marine insurance in the United States, as shown in Table 3, where foreign market share rose above the 30 percent mark between 1872 and 1915, sometimes more than once.

16 Trebilcock, Phoenix Assurance, vol.2: 142. According to the U.S. consul in Moscow in 1905, foreign insurance companies could operate under a charter, but few did. A few more operated illegally. U.S. Bureau of Manufactures, Insurance in Foreign Countries, Special Consular Report 38 (Washington, D.C., 1905)Google Scholar.

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45 Mikael Lönnborg and Robin Pearson, “Multinational Insurers and Catastrophic Loss: Responses to the San Francisco Earthquake, 1906,” unpublished paper.

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49 In this paper, “foreign” only applies to insurance companies whose head office is located in another country. In federal polities, such as the United States and Germany, the term was also often applied by state authorities to companies from other states operating in their territory. Such companies are here referred to as “out of state.”

50 Calculated from Jahrbuch für das gesamte Versicherungswesen in Deutschland, 1864-66.

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73 WIR 3 (1869-70): 689-70; RdV 30 (1880): 358-59; ICM 7 (July 1879): 101. Some states were quick to follow New York's lead. In Ohio, for instance, a law came into effect in 1880 banning companies from writing both fire and life insurance. ICM 8 (Jan. 1880): 107.

74 Morton Keller has described four types of business regulation, namely, American “pluralist,” German “corporatist,” British “contract liberal,” and French “dirigiste.” However, these have questionable relevance to insurance where the multiple layers of regulation in countries such as Germany and Belgium defy any such neat typologies based on political economy. Keller, Morton, “The Pluralist State: American Economic Regulation in Comparative Perspective, 1900/1930,” in Regulation in Perspective: Historical Essays, eds. Keller, Morton and McCraw, Thomas (Boston, 1981)Google Scholar.

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83 There is only limited evidence of premium rate regulation through most of the period we cover. In Austria, the power to examine policy conditions and premium rates was extended in 1860 to provincial commissioners appointed by the Ministry of the Interior, but how far they amended rates is unknown. In Russia, the premium rates of the state-chartered fire-insurance companies were fixed by their charters. In the United States, despite the extension of antitrust regulation to fire insurance—sixteen states had enacted so-called anti-compact laws by 1907—no state directly regulated premium rates before Kansas did so in 1909. The Kansas law was contested through the courts, until it was finally upheld by the Supreme Court in 1914. Anticompact laws counted from Hayden's Annual Cyclopedia of Insurance in the United States, 1906-7 (Hartford, 1907), 28–45Google Scholar.

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