Gambling on Claim Frequency: Loss Expectation and the Spread of Risks in the Making of Modern Insurance

In this paper, I argue that the two main principles underlying modern insurance business, i. e., loss expectation and the spread of risks, were not unknown in late-medieval and early-modern insurance practice. The former was embedded into premium rates and explains why in late-medieval and early-modern insurance contracts, premiums were expressed not as a bare sum but in the form of a rate. The latter was clearly formulated by Benedetto Cotrugli as he recommended to underwrite “continuously, & upon every ship, because the one offsets the other, & by pooling, [insurers] cannot but make a profit”. I focus on the principle of loss expectation and argue that underlying this principle there was a kind of commodification of uncertainty that both propelled and was supported by the semantic distinction of risk and danger. I finally sketch out some of the reasons why the basic principles underlying insurance business could find full exploitation only in modern society, and argue that if a statistical calculus of probability for insurance purposes was first carried out between the mid-17th century and the mid-18th century, it was not because of a deficit of ideas but because of a deficit of social structures. Compared to modern insurance business, late-medieval and early-modern insurance agreements were, in the end, a form of gambling based on some estimate of claim frequency.