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SESSION 18. Risk-spreading and risk-shifting: Insurance and General

18. Risk-spreading and risk-shifting: Insurance and General Average late medieval and early modern Europe.

Guido Rossi (Edinburgh University). guido.rossi@ed.ac.uk

ABSTRACT

As it is well known, the early modern period saw the rise of insurance (chiefly, maritime one) on a global scale. While several works have been written on the subject, however, our understanding remains significantly patchy. Insurance is often taken as a riskshifting instrument that appeared almost ex nihilo, as if beforehand there was nothing to support maritime trade. Much on the contrary, insurance developed alongside different and pre-existing practices, chiefly that of general average. This panel will focus on their relationship, and the influence of the one on the other, seeking to provide a wider overview on the development of risk-mitigation techniques.

General average is a risk-spreading technique widely attested in medieval Europe before the elaboration of insurance. Its success and importance are both shown by the simple fact that it is still an important part of today’s shipping law. General average redistributes costs across all interested parties (both merchants and shipmaster) for damages and other expenses which can befall ships and cargoes from the time of their loading aboard until their unloading (due to accidents, jettison, and unexpected costs).

While the history of insurance is (at least, in its broad lines) known to scholars, that of general average is not. Moreover, their interaction has never been investigated. This gap is of significant importance, for it prevented a proper assessment of the economic and legal implications of the rise of insurance. Insurance built on a system already in place (that of general average), seeking not to displace it, but rather to extend the protection which general average already provided. This ‘extension’, however, operated on a different level: no longer risk-spreading, but risk-shifting. The shift element (the true novelty of insurance) led to important changes in the position of the parties, both economically and legally. Such changes, however, have never been assessed.

The development of insurance is in many ways a history of the changing approach to the balance of interests between the parties. The same, crucially, can be said of general average: some local variants of a same principle were more favourable to the shipmaster, others to the merchant damaged, others still to the other merchants who would have to contribute towards the damage or the expenses. Since averages developed well before insurance, it is extremely likely that the balance of interests reached on insurance within any market, custom or regulation did take into account the balance of interests resulting from the specific rules on general average in that same market, custom or regulation. At the same time, however, it is far from clear whether the interaction of insurance and general averages just entailed a better cover for the risk or also some overlaps, and even contradiction between them. The co-ordination between averages and insurance in their historical development is a subject virtually unexplored.

The interplay between general averages and insurance may also be appreciated in terms of cross-circulation of ideas. Maritime compilations contained rules on both insurance and general average. Their circulation favoured the progressive refinement of both practices. Did this refinement develop along similar ways and following the same rationale for both average and insurance?

Lastly, and very importantly, another aspect that needs to be addressed concerns economic culture. Averages redistributed risk within the subjects already bearing it. Insurance shifted it to a party that was third in respect to the underlying economic activity. Did this change entail a similar shift in the notion of risk itself?

General average was – and remained – a mutualistic form of protection. Spreading the risk to all parties meant increasing the likelihood of its occurrence for each of them, but greatly reducing the actual cost borne by any single party. Already in its earliest forms, by contrast, insurance was a speculative instrument. One party would increase its total costs by paying a third subject to bear the consequences of a possible but uncertain event. In real life, the two institutions have always been considered as complementing each other. Scholarly work has neglected the one and focused almost exclusively on the other. It is time for a reassessment.

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