The Making of the Swedish Life Insurance Market 1855-1914 Liselotte Eriksson ISSN: 1653-7475 Occasional Papers in Economic History Nr 15/2008 Licentiate Thesis Occasional Papers in Economic History No. 15 2008 © Liselotte Eriksson, 2008 Institutionen för ekonomisk historia 901 87 Umeå www.ekhist.umu.se Abstract This licentiate thesis examines the development of the life insurance industry during the period 1855-1914. The aim with the study is to recognise dimensions not frequently addressed by previous research on the insurance industry, namely the impact of social dimensions, including the implicit and explicit economic importance of social movements and the diffusion of knowledge in society at large for the development of the life insurance industry. The study shows that income and price had limited importance in explaining the demand for life insurance before the 20th century and that this can be attributed to a lack of sufficient knowledge regarding financial issues and to a far too high access cost in acquiring a life insurance for a large part of society. The development of the life insurance industry must therefore be understood through improved knowledge both on the part of the life insurance companies and on part of the consumers. The licentiate further shows how diffusion of knowledge throughout society also was due to a diffusion of democratic ideas and the rise of social movements, movements that life insurance actors were a part of. These actions helped open up the financial market for the masses and probably also strengthened the trust towards the industry. It is however hard to dismiss the life insurance actors’ engagement in women’s movement as a cover-up for other disguised motives not so honourable, while a direct economic gain for the life insurance industry is hard to establish. Keywords: Economic history, life insurance, demand, price elasticity, income elasticity, married women’s property rights, social movement 3 Acknowledgements Many have contributed to this licentiate thesis. First I wish to thank my supervisor Magnus Lindmark for his constant encouragement, entertaining metaphors and for commenting this licentiate thesis in various stages without loosing faith. I further want to thank several eminent academics for their often vivid comments and support: Mike Adams, Lars Fredrik Andersson, Monica Burman, Mikael Lönnborg, Joel Mokyr and Jan Ottosson. On the personal level my twin sister Madeleine and her husband Rikard have my constant love and gratitude. And to my beloved niece Judith born October the 16th 2008, I am sorry I missed your first weeks on this earth while finishing this licentiate thesis. It won’t happen again. Finally, thank you Fredrik for everything! Liselotte Eriksson Umeå, October 31th 2008 4 CONTENTS 1 INTRODUCTION.............................................................................................................................................. 6 1.1 BACKGROUND ............................................................................................................................................... 6 1.2 THE OBJECTIVES AND RESEARCH QUESTIONS .............................................................................................. 10 1.3 THE OUTLINE OF THE LICENTIATE THESIS AND DEFINITIONS........................................................................ 12 1.5 METHODS AND SOURCES ............................................................................................................................. 14 1.5.1 Article I............................................................................................................................................... 16 1.5.2 Article II.............................................................................................................................................. 17 2. PREVIOUS RESEARCH............................................................................................................................... 19 3. USEFUL KNOWLEDGE AND THE FINANCIAL ECONOMY .............................................................. 25 ARTICLE 1: INSURANCE AND INCOME GROWTH: THE CASE OF SWEDEN 1830-1950 ............... 28 Abstract ....................................................................................................................................................... 30 Key Words ................................................................................................................................................... 30 Introduction................................................................................................................................................. 31 The financial revolution and the growth of insurance markets ................................................................... 33 Method......................................................................................................................................................... 36 Data............................................................................................................................................................. 38 The demand for insurance ........................................................................................................................... 43 The development of price and risk in life and fire insurance....................................................................... 50 Concluding remarks .................................................................................................................................... 57 Acknowledgements ...................................................................................................................................... 59 Literature..................................................................................................................................................... 60 ARTICLE 2: FINANCIAL BUSINESS AS A SOCIAL PROJECT............................................................... 67 6 CONCLUSIONS .............................................................................................................................................. 91 7 SOURCES AND LITERATURE.................................................................................................................... 93 7.1 OFFICIAL STATISTICS................................................................................................................................... 93 7.2 LITERATURE................................................................................................................................................ 93 5 1 Introduction 1.1 Background Sound insurance companies, are according to Richard Sylla one of the components of a modern financial system. The evolution of sound insurance companies is part of what he calls the 19th century financial revolution.1 Not the least the life insurance industry came to play a crucial part in the development of the financial system by mobilizing savings and allocating risks.2 The social and economic transformation of Sweden during the 19th century changed how risks were perceived, valued and mitigated. In the agricultural society, it was commonplace that risk-management was based on customary rules that aimed at diversifying risks in the agricultural production, i.e. self-insurance .3 Women, children or other relatives could for example have opportunity and enough knowledge about e.g. farming to take the place of a deceased or injured member of the family. Urbanisation and new conditions on the labour market changed this state of affairs as wage earnings became increasingly important. An increasing part of the population became dependent primarily on one male breadwinner, not the least in the growing cities. The premature death of the man could therefore leave the family in economic ruin. A life insurance could in these cases be a substitute for the lack of capital assets and the over time diminishing safety net of the old agricultural society. Consequently, life insurance came to play an important part of the 19th century economic and social modernisation. Organized efforts to reduce the consequences of private risk, by sharing risk, have a long tradition in society. Already medieval guilds and craftsmen’s associations initiated a primitive kind of compulsory health and funeral insurance, and in the case of illness, everyone in the guild were obligated to support the injured or seriously ill guild-member by economic or practical means. The receiver of the contributions, however, had to pay back the help given after his recovery. In the case of death, all guild-members had to make a contribution to the funeral.4 This system had its weaknesses, for instance due to insufficient funding and risk management while, from the perspective of the individual, a period of illness could result in serious indebtedness. A forerunner to the life insurance industry as it evolved in Sweden since 1 Sylla (2002), p. 280 2 Mason (1995), pp. 172-175. 3 Hägg (1998), p. 106. 4 Lindberg (1949), pp. 2-5. 6 the mid 19th century, was a kind of widows’ fund (Amiralitets-Krigsmanskassan), established in Sweden 1642. This was, in the Swedish context, a new institutional form of provision for dependents, providing pensions for widows on the basis of contributions made during their husbands’ lifetimes.5 The funds were limited to specific regions and underwriting was exclusively intended for men with specific positions in society, primarily the growing group of officials with lack of capital