Former A&A CEO Traces the Roots of Insurance in New Book

October 20, 2003

ormer Alexander & Alexander CEO John A. Bogardus recently released his comprehensive history of the insurance marketplace entitled Spreading the Risks, Insuring the American Experience (ISBN# 1-889274-16X).

The 13-year venture spans the marketplace starting with ancient Greek and Roman civilizations dating back to B.C. to its humble beginnings in Edward Lloyd’s Coffee House in the late 1600s, and finally to the 21st century, with the most catastrophic event thus far in history, the terrorist attacks of 9/11.

Bogardus began writing the book with intentions to document the history of Alexander & Alexander, where he served close to half a century, retiring as director in 1995. While he was researching and documenting its history, Bogardus took a new direction. “I realized in doing my research that there was no book that you could find, no resource at all, which traced the history or even an overview of the way insurance developed and the way agents and brokers developed in this country,” he said.

“There was no one book that gave sort of a snapshot of how that all worked, and so I thought that would be useful for other people to use as a resource if necessary.”

Decade by decade, Bogardus left no stone unturned as he documented the cyclical industry, from the rise of Lloyd’s of London beginning in 1771, to the emergence of fire insurance in the British colonies in the eighteenth century; insuring World Wars I and II; and remarking on catastrophic events such as the 1906 San Francisco earthquake and 9/11.

Bogardus noted the significant changes that occurred in the industry over time—and the lessons the agents of today have learned from their predecessors. “The early insurance companies didn’t know a lot about spreading the risk. They tended to have all their insurance in one location such as Philadelphia or New York City or Boston. Many of them had to go bankrupt because they couldn’t meet their responsibilities with claim payments,” Bogardus said.

“There was no methodical method of pricing a risk, it was just all guesswork as to what the risk was worth, and now, of course, it’s much more scientific.

“I think the companies learned that they had to specialize—it became far too much to expect single individuals to be adequately proficient in all sides of the business,” he added. “Now of course it’s a very highly specialized industry.”

Before 1721, insurance was “modest and awkward,” and “limited to marine risks,” Bogardus wrote in his book.

During the American Revolution (1775-1783), marine insurance became a popular coverage as underwriting grew. Fire insurance was popular in the eighteenth century until a December 1835 fire in New York City forced 23 out of 26 New York fire insurers into bankruptcy. The fire also prompted reforms in building codes, fire-resistant construction and the development of a piped-in water supply, according to Bogardus.

The Industrial Revolution of the 1800s sparked further growth in the industry as companies needed more and more coverage, allowing the agencies and brokerages to expand.

In the early 20th century, Bogardus explained, “you had these entrepreneurs who were working with almost nothing and were able to build insurance companies—they were jacks of all trades—they had to be. They couldn’t specialize.”

Bogardus said that, over the years, the market grew as the need for different types of risks grew. In the 1920’s, crop, tornado and windstorm insurance—those types of coverages were all purchased individually. Eventually, they became part of a package, he said. Kidnap and ransom insurance made its way onto the scene after the kidnapping and murder of famed aviator Charles Lindbergh’s son in 1932. By the 1970s, the coverage expanded with the increasing number of terrorist incidents. Lloyd’s introduced professional liability and product liability exposures.

He noted in particular the 1980s frenzy of mergers and acquisitions as a pivotal point in defining the roles of agents and brokers. “That has been a phenomenon that just created a whole new playing field in the business, along with the globalization of insurance,” Bogardus said.

Bogardus directs special attention to the development of Alexander & Alexander, using it as a paradigm of an American brokerage to illustrate the rise of U.S. insurance companies over the past century. He states in his book, “Like many others that remain unsung, the agency had a start that merits recalling, as it appears to have been typical in many ways.”

Through a virtual “who’s who of the industry,” Bogardus discusses the rise of other prominent companies in the U.S., including Marsh & McLennan, The Hartford and Lloyds. He designates a good part of the book to the Howden Affair—a scandal that rocked Lloyds and Alexander & Alexander in the 1980s. Lloyd’s troubles continued with the advent of Hurricane Betsy, the Sasse and Savonita scandals, and later the “PCW Affair.”

Bogardus predicts more consolidation in the industry in the future; and believes reinsurance companies will continue to form to provide more capacity. The industry will become entirely globalized, and financial services will take a much bigger role in the insurance marketplace as companies continue to merge.

Below is an excerpt taken from www.spreadingtherisks.com.

The Emergence of Brokers
“… During the final two decades of the nineteenth century, brokerages multiplied and became more easily distinguishable from agencies. … While most insurers preferred to deal only with their own agents, they ultimately conceded that brokers were inevitable and a growing force.

“… While the larger brokerages were advertising themselves as brokers, the line between agent and broker remained blurred. Where vital industry matters were involved, there was no distinction. Leading executives from various brokers and agencies collaborated to promote industry safety issues. When the World’s Columbian Exposition of 1893 (i.e., the World’s Fair) was being launched in Chicago, an auxiliary committee was formed that included such names as W. A. Alexander, R. S. Critchell, Fred. S. James, and R. A. Waller, all of whose firms became major Chicago brokers.

“…The two dominant insurance brokers of the day, Johnson & Higgins and R. A. Waller (Marsh & McLennan), expanded rapidly through acquisitions. … In 1894, the (Waller) firm acquired the O. W. Barrett & Company agency, owned by H. J. Ullmann, who was adept in organizational and administrative matters. Two years later, it numbered some twenty employees.”

Robert H. Moore Ph.D, former president of Government and Industry Affairs Inc. in Washington D.C., assisted Bogardus in his research. For more information or to purchase Spreading the Risks, visit www.spreadingtherisks.com.

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