Palgrave Macmillan Studies in Banking and Financial Institutions Series Editor: Professor Philip Molyneux The Palgrave Macmillan Studies in Banking and Financial Institutions are inter- national in orientation and include studies of banking within particular coun- tries or regions, and studies of particular themes such as Corporate Banking, Risk Management, Mergers and Acquisitions, etc. The books’ focus is on research and practice, and they include up-to-date and innovative studies on contemporary topics in banking that will have global impact and influence. Titles include: Yener Altunbas¸, Blaise Gadanecz and Alper Kara SYNDICATED LOANS A Hybrid of Relationship Lending and Publicly Traded Debt Yener Altunbas¸, Alper Kara and Öslem Olgu TURKISH BANKING Banking under Political Instability and Chronic High Inflation Elena Beccalli IT AND EUROPEAN BANK PERFORMANCE Paola Bongini, Stefano Chiarlone and Giovanni Ferri (editors) EMERGING BANKING SYSTEMS Vittorio Boscia, Alessandro Carretta and Paola Schwizer CO-OPERATIVE BANKING: INNOVATIONS AND DEVELOPMENTS Santiago Carbó, Edward P. M. Gardener and Philip Molyneux FINANCIAL EXCLUSION Allessandro Carretta, Franco Fiordelisi and Gianluca Mattarocci (editors) NEW DRIVERS OF PERFORMANCE IN A CHANGING FINANCIAL WORLD Dimitris N. Chorafas FINANCIAL BOOM AND GLOOM The Credit and Banking Crisis of 2007–2009 and Beyond Violaine Cousin BANKING IN CHINA Robert L. Carter OBE and Peter Falush THE BRITISH INSURANCE INDUSTRY SINCE 1900 The Era of Transformation Franco Fiordelisi and Philip Molyneux SHAREHOLDER VALUE IN BANKING Hans Genberg and Cho-Hoi Hui THE BANKING CENTRE IN HONG KONG Competition, Efficiency, Performance and Risk Carlo Gola and Alessandro Roselli THE UK BANKING SYSTEM AND ITS REGULATORY AND SUPERVISORY FRAMEWORK Elisabetta Gualandri and Valeria Venturelli (editors) BRIDGING THE EQUITY GAP FOR INNOVATIVE SMEs Munawar Iqbal and Philip Molyneux THIRTY YEARS OF ISLAMIC BANKING History, Performance and Prospects Sven Janssen BRITISH AND GERMAN BANKING STRATEGIES Kimio Kase and Tanguy Jacopin CEOs AS LEADERS AND STRATEGY DESIGNERS Explaining the Success of Spanish Banks M. Mansoor Khan and M. Ishaq Bhatti DEVELOPMENTS IN ISLAMIC BANKING The Case of Pakistan Mario La Torre and Gianfranco A. Vento MICROFINANCE Philip Molyneux and Munawar Iqbal BANKING AND FINANCIAL SYSTEMS IN THE ARAB WORLD Philip Molyneux and Eleuterio Vallelado (editors) FRONTIERS OF BANKS IN A GLOBAL WORLD Anastasia Nesvetailova FRAGILE FINANCE Debt, Speculation and Crisis in the Age of Global Credit Dominique Rambure and Alec Nacamuli PAYMENT SYSTEMS From the Salt Mines to the Board Room Catherine Schenk (editor) HONG KONG SAR’s MONETARY AND EXCHANGE RATE CHALLENGES Historical Perspectives Andrea Schertler THE VENTURE CAPITAL INDUSTRY IN EUROPE Alfred Slager THE INTERNATIONALIZATION OF BANKS Noël K. Tshiani BUILDING CREDIBLE CENTRAL BANKS Policy Lessons for Emerging Economies Palgrave Macmillan Studies in Banking and Financial Institutions Series Standing Order ISBN 978–1–4039–4872–4 You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England The British Insurance Industry Since 1900 The Era of Transformation Robert L. Carter OBE Emeritus Professor of Insurance Studies, University of Nottingham, UK and Peter Falush Consultant Economist © Robert L. Carter OBE and Peter Falush 2009 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2009 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin's Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN-13: 978–0–230–21964–9 hardback ISBN-10: 0–230–21964–0 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 18 17 16 15 14 13 12 11 10 09 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne Contents Insurance Key Dates and Events vii List of Tables and Figures x Preface xiv Part I First Half of the Century 1 The Industry from the End of the Victorian Era to 1914 3 2 Insurance in World War I 15 3 The Interwar Years 23 4 Insurance during World War II 31 Part II Lines of Business 5 From Austerity to Prosperity 41 6 Life Insurance 61 7 Commercial Insurances 82 8 Reinsurance 108 9 Risk Management 117 10 Lloyd’s of London 126 11 International Business and Europe 135 Part III Market Infrastructure 12 Competition and Mergers 149 13 Trade Associations and Other Bodies 168 14 Distribution Channels 177 15 The Regulation of Insurance 191 16 Retrospect and Prospect 202 Appendices 1 Principal works on pre-1900 British insurance market 218 2 Reading list on insurance company investments 219 v vi Contents 3 Life and composite offices amalgamated 1989–2000 220 4 Commercial lines premiums 1995, 2007 (£m) 222 Notes 223 References 225 Index 231 Insurance Key Dates and Events Date Event 1901 Industrial Life Offices Association founded 1903 Lloyd’s establishes a non-marine market 1904 Lloyd’s wrote its first motor policy 1906 San Francisco earthquake; Cuthbert Heath devises excess of loss reinsurance Marine Insurance Act 1906 Workmen’s Compensation Act 1906 Accident Offices Association formed 1907 Employers Liability Insurance Companies Act 1907 1909 Assurance Companies Act 1909 Workmen’s Compensation tariff adopted 1911 Lloyd’s Act 1911 Lloyd’s writes first aviation insurance policy 1912 Chartered Insurance Institute receives charter 1914 Insurers and government agree on scheme for marine hull & cargo insurance 1916 British Insurance Association established by leading composite insurers 1918 Russian insurance industry nationalised 1919 Holman Gregory Committee examines employers’ liability business. Establishment of the state owned Export Credit Guarantee Department 1923 Industrial Life Assurance Act 1923 Workmen’s Compensation Act 1923 1931 Road Traffic Act 1930 came into force 1933 Assurance Companies (Winding-up) Acts 1939 War Risk Insurance Act 1939 to cover war risks for stocks and raw materials 1946 Assurance Companies Act 1946 1948 The NHS and social security scheme to replace WCA insurance inaugurated 1949 Nationalisation of industrial life insurance proposed 1953 East Coast floods 1957 British Insurance (Atomic Energy) Committee constituted 1958 Insurance Companies Act 1958 1960s Round of mergers of major companies Continued vii viii Insurance key dates and events Date Event 1961 Abbey Life enters market with direct sales force 1963 Formation of Association of Insurance Managers in Industry & Commerce 1965 Hurrricane Betsy and Los Angeles riots 1966 Collapse of Fire Auto & Marine Insurance Co. 1967 Companies Act 1967 Life offices establish unit trusts 1968 Fire insurance referred to Monopolies Commission Motor tariff abandoned 1969 Employers’ Liability (Compulsory Insurance) Act 1969 Employers liability tariff abandoned 1970 Dawson’s field hijacking of 4 jet airliners 1971 Collapse of Vehicle & General Engineering tariff abandoned Lloyd’s establishes Lloyd’s Life 1972 Monopolies Commission publishes report on Fire Insurance. 1973 Insurance Companies Amendment Act 1973 UK joins the EEC First Non-Life Insurance Directive 1974 Insurance Companies Act 1974 Stock market crash Health & Safety at Work Act 1974 Flixborough chemical plant explosion; cost £20m 1975 Policyholders’ Protection Act 1975 Social Security Pensions Act 1975 introduced SERPS 1977 Insurance Brokers (Registration) Act 1977 Unfair Contract Terms Act, 1977 Tenerife Airport collision of 2 Beoing 747, killing 538 1978 Lloyd’s agree to working party to examine self-regulation 1979 Life Insurance Freedom of Establishment Directive 1980s UK companies buy American life companies Mid-1980s around 200 companies operating in London Market 1982 Insurance Companies Act 1982 Lloyd’s Act 1982 1983 Mortgage Interest Relief at Source introduced 1984 Withdrawal of Life assurance Premium Relief Explosion