Shaped by risk: The American fire insurance industry, 1790--1920.

摘要

Fire insurance represents one of the first institutional approaches to risk management in the United States. Between 1790 and 1920, the American fire insurance industry recast the unmanageable physical hazard of fire as a financial risk. In the formative years of the industry, catastrophic fires repeatedly bankrupted waves of insurers, confronting the survivors with the need for strategic and structural adaptations. Their responses included geographical diversification, and the establishment of a cooperative regime. Ultimately, insurers were forced to adapt to state rate regulation. Their strategies served to assure long-term stability for the industry as a whole at the expense of individual firms' pursuit of short-term gains.; Fire insurers initially faced the excessive concentration of risks, which exposed them to the consequences of large-scale conflagrations. After the New York Fire of 1835, fire insurers expanded into new markets across the country to diversify their risks. Fire insurance grew into a national industry. But the new methods yielded principal-agent problems that endangered some firms. More seriously, competitive pressures kept firms from setting prices high enough to account for the risk of large-scale fires, leading to widespread failures after the Chicago Fire of 1872 and the Boston Fire of 1873.; The survivors organized a new cooperative order, based on establishing a local rate-setting board, or cartel, within each market. The boards eased the pricing problem and also the ongoing problem of monitoring agents, and helped to stabilize the industry during the 1880s and 1890s. Consequently, few companies failed after the Baltimore Fire of 1904 and the San Francisco Fire and Earthquake of 1906.; But actuarially-based rates still eluded the industry, and collective rate-setting faced consumer resistance. State regulation of rates largely resolved these problems, providing rates with both a statistical basis and a new legitimacy. By 1920, state regulation had taken its present form: a partnership between the fire insurance industry and state insurance departments.; This investigation of the history of fire insurance provides an alternative to the Chandlerian paradigm of business development, focusing on managing risk rather than improving efficiency. The risk-management paradigm may shed light on business development in other industries.