My writing style

As my connections will know, I enjoy writing. I usually reflect on what I wish to say when I do my daily walks (sometimes I even write on my phone whilst I walk). I do not know if I succeed or not, but in my own mind I have a peculiar style where I try (but may not succeed!) to narrate a story, keep sentences as short as I can, keep paragraphs flowing and bring some aspect of history to life.  Some people are born/gifted writers. I am not. Although I have over the years published very many articles on different subjects (and three books), I found writing really difficult throughout my child and teenage years. Then something clicked in my brain: “you don’t have to overload your writing with too much knowledge [which I did not then have], focus/develop a few points [tell a story], there is power in simplicity [which is what I had]”. It worked for me.

Below are the opening paragraphs from my book “A Guide to Insurance: Combining Governance, Compliance and Regulation” (2012). I took creative and historical licence (Middle Ages, Florence, Genoa, merchants, maps, pirates!) to contextualise what I wanted to say and make no apology for it.

“Today it is easy to take commerce for granted. Commercial operations of all kind dominate our lives including shopping, public transport and tourism.  Although one would not normally associate this with ‘risk’, the concept of risk is inherent in every commercial activity. There are two basic risks in commerce and they are of a financial nature.

The first is the risk of incurring personal liability beyond the capital invested in a business and therefore ultimately the risk of bankruptcy. In the face of potential unlimited liability and the adverse impact this had for the expansion of commerce, legal systems in western Europe intervened by recognising the limitation of liability of those who put capital at risk in certain commercial operations. This was initially achieved through private contractual arrangements but a contract afforded no protection from involuntary creditors (i.e. tort claims). As maritime trade expanded dramatically in the Middle Ages the legal principle eventually emerged in virtually all maritime countries that the liability of ship-owners was limited to the value of the goods and vessel. This encouraged ship building and maritime commerce at a large scale. Likewise, laws were introduced which recognised various legal forms that limited the liability of general traders to the amounts invested in the business; hence the origins of the limited partnership (and subsequently the limited company) in Europe. Without the legal principle of limited liability, merchants would have been reluctant to risk their entire personal wealth in commercial enterprise and international trade would have been hindered. Today, limited liability is incorporated into business forms in most (if not all) countries around the world.

The second risk inherent in commerce is the risk of sustaining a loss. In the revival of maritime trade during the Middle Ages a merchant that exported goods from one country to another by sea faced the usual perils of bad weather, hostile encounter or even attack from pirates or enemies in times of war, all of which could have crippling economic consequences. Maritime insurance developed as a means of offering him protection against the risk of personal loss (i.e. loss of or damage to cargo). In return for the upfront payment of a fixed sum of money, the merchant was able to transfer that risk to other merchants (or financiers) who, in turn, were willing to put their own capital at risk to participate in the profits of underwriting this. In the event of a casualty, the indemnity would pay out. Importantly, insurance was not prohibited by the then laws of usury precisely because it constituted risk transfer.

A level of sophistication developed in the rating of maritime insurance contracts (which distinguished it from gambling) such as the sea worthiness of the vessel, its defensive capabilities, the season, the sea route, the captain’s maritime experience, and more importantly, conditions of war or peace. Italians from Florence and Genoa (where insurance contracts were perfected) are said to have exported insurance business to other major European trading centres of the time (the Mediterranean ports such as Valencia and Barcelona, the Low Countries, and England).

Therefore, a merchant in Florence or Genoa, looking at shipping cargo to say, England, and concerned about commercial risk would typically either manage the risk himself by increasing armed protection for the vessel, or buy insurance. Depending on the size of the cover required, one or more individuals would underwrite it. The larger the risk, the more likely it would be spread among several underwriters. Contracts would be drawn up and notarised before a local notary. In very much the same way as insurance works today, the underwriters would have to decide, first whether they wanted to underwrite the particular risk, and secondly, what the price (premium) would be. Maps of the western European coastline for use in sea journeys were fairly advanced by this time and naturally navigation through high risk routes (such as areas known for the presence of pirates, local hostility, bad sea weather or shipwrecks) attracted a higher premium. In its rudimentary form it is not entirely different to the rating structures seen today across many classes of insurance. In the absence of modern telecommunications technology, market intelligence (even rumour spread by word of mouth), played an important part in the decision to underwrite or price maritime insurance. This was especially critical in times of impending (or imminent) acts of war where a ship could be attacked at sea and/or goods confiscated on arrival at a hostile port. Today, as we shall see elsewhere in this book, local intelligence is also considered a valuable tool in insurance supervision. In the event of a dispute between the parties the matter would be adjudicated in the local courts as they would today. In this respect, as the use of insurance spread across western European countries, we see the early development of insurance law through judicial authorities. But with no regulation to regulate insurance business, insurance was based on trust; in other words, trusting that the underwriters would pay in the event of a loss.

The modern insurance practitioner would recognise some of the problems of the early insurance market as not being too different to the problems the market still faces today. Insurance fraud was not unknown. A merchant, for example, who had received news that his cargo had already been lost at sea, could be tempted into buying insurance for it. On the other hand, an underwriter would underprice risk in order to obtain payment of upfront premiums, hoping that a loss would never materialise. In the event of multiple claims, he could face financial ruin, and the insured might not receive even partial payment under the insurance contract.

Insurance also extended to the underwriting of risk associated with the transport of cargo by land from one part of Europe to another. This eventually developed into the business of insurance as we know it, at the heart of which lies the concept of pricing and management of risk. In its early days, of course, whilst insurance remained a private transaction between businessmen who were supposed to understand the risk they were taking, the State was content to regulate the relationship as a matter of contract law (insurance law being part of the general law of contract). Over time, insurance became a mass market commodity and became highly regulated.

 In both cases described above, capital could therefore be risked in the pursuit of profit, whilst allowing losses to be limited. Without the protection of insurance and limited liability, we would probably not have seen economic growth in the scale and at the pace seen around the world over the last few centuries. In essence, they have been the dual engines of capitalism. The principle could be defined as follows: risk is inherent in any commercial activity; risk-taking is to be encouraged as it creates wealth and benefits the community; business failure can never be eliminated, but the consequences of failure can be contained (if not stopped) through limiting the amount of capital at risk in the event of such a failure and/or transferring and spreading risk to other parties who are willing to assume that risk.”