Insuring the Industrial Revolution: Fire Insurance in Great Britain, 1700-1850 (review)

Robin Pearson's Insuring the Industrial Revolution provides a richly detailed account of the British fire insurance industry through the mid-nineteenth century. Whereas most previous accounts have focused on single companies, Pearson's study encompasses the entire industry of London and provincial firms and seeks to place the industry within the larger context of British economic history.

British economic historians have long overlooked the contribution of insurance, and service industries in general, to the nation's economic growth. Pearson shows that insurance output and income grew much faster than gross national product (GNP) throughout the period, except during the Napoleonic Wars. Insurance outstripped many other manufacturing and commercial sectors in its rate of growth, while capital formation in insurance grew at triple the rate of national income during the first half of the nineteenth century.

The book's first chapter describes these long-term trends. Using company records for the period before 1782 and published tax return data for the period after, Pearson is able to reconstruct the number of companies in business, the volume of their business, the total sums insured, and the average rate of premiums collected through the period. He finds that the total amounts insured against fire multiplied twenty-four times between 1725 and 1850, while the proportion of insurable property carrying insurance more than doubled between 1760 and 1850. He also identifies a cyclical pattern to company formation, with most new companies having formed during five different short periods. Premium income, while rising over the long term, experienced some sharp rises and falls.

The rest of Part I (chapters 2 through 5) explores the fire insurance market and the growth of the industry during specific periods. Chapters 2 and 3 concern the London and provincial markets during the eighteenth century; chapter 4 covers the war years of 1782–1815; and chapter 5 deals with the years after 1815. In these chapters Pearson also grapples with the causes of the remarkable growth of the fire insurance industry. Was it caused by an increase in actual fires or by changing perceptions of fire risk? Did the building cycle play a part? The growth of a white-collar middle class? Or falling premium rates? Pearson offers no definitive answer but shows how all these factors may have contributed.

The four thematically organized chapters of Part II (chapters 6 through 9) delve into the workings of the industry, dealing respectively with company formation, marketing, underwriting, and investment across the entire period. Here Pearson shifts from economic history to business history. We learn how British fire insurers pioneered many of the business practices considered 'modern.' When most businesses were still small partnerships, stock fire insurers were already large, capital-intensive organizations. Pearson shows how insurers began to separate directorial duties from management at a fairly early date. They also used sophisticated marketing and sales techniques, participated in corporate takeovers, and organized cartels.

At the same time, Pearson shows that fire insurers were not particularly efficient or rational organizations. During most of the period under consideration, insurers made no systematic attempts at analyzing underwriting data. Not until the nineteenth century did insurers even begin to discriminate routinely between different types of property risks. In 1850, when Pearson's study ends, actuarial rating was still decades away.

The fire insurance industry also stagnated when it came to product innovation. Established firms made no attempts to move into other branches of insurance or to create new products. The industry underwent tremendous growth, without experiencing significant productivity gains. As a consequence, although British fire insurance anticipated its rivals in continental Europe and the United States by as much as a century, it failed to establish a competitive advantage in these new markets.

An American historian of fire insurance reading Pearson's book is struck less by the differences in the history of the industries than by the relative depth of sources available in Britain. For example, in...