They say the Scots are a pessimistic people. Maybe it’s the weather — all those hundreds of rainy days. Maybe it’s the endless years of sporting disappointment. Or maybe it was the Calvinism we picked up at the time of the Reformation. Certainly, it’s two Church of Scotland ministers who deserve the credit for inventing the first true insurance fund, back in 1744, and fathering a multi-billion-pound industry.
The Kirkyard of Greyfriars is best known for the grave-robbers, the Resurrection Men, who came here in the late 18th century to supply the Medical School at Edinburgh University with corpses for dissection. But Greyfriars’ lasting importance comes from the work of the minister here, Robert Wallace, and his friend, Alexander Webster.
It’s somehow appropriate that it was Scottish ministers who invented modern insurance. After all, we tend to think of them as the embodiment of prudence and thrift, weighed down with an anticipation of impending divine retribution for every tiny transgression. But in fact, Robert Wallace was a hard drinker as well as a mathematical prodigy, who liked nothing better than knocking back magnums of claret with his bibulous buddies.
Wallace and Webster were unhappy at the way the widows and children of their fellow clergymen were treated when the Grim Reaper struck. They often found themselves homeless and penniless. The plan Wallace and Webster came up with was ingenious — the first true insurance fund in history.
These are some of the voluminous calculations that Robert Wallace did, now housed at the National Archives of Scotland. And you can see how he ran the numbers over and over again, making very careful assumptions about the maximum number of widows and orphans that would have to be provided for. The key point, however, was that from now on ministers wouldn’t just pay money in that would be paid out when one of their number died. Rather, they would pay premiums that would be used to create a fund, and the fund would then be invested for profitable purposes. The widows and orphans, henceforth, would be paid out of the returns on that money, leaving the premiums to accumulate.
All that was required for the scheme to work was an accurate projection of how many widows and orphans there would likely be in the future. A calculation which Wallace and Webster made was extraordinary precision. The creation of the Scottish Ministers Widows Fund was a milestone in financial history, for it provided a model not just for Scottish clergymen but for everyone who aspired to provide for life eventualities.
By 1815, the principle of insurance was sufficiently widespread to be adopted for the widows of men who lost their lives fighting against Napoleon. At the battle of Waterloo, your chances of getting killed were up to one in four, but at least if you’d taken out insurance, you had the consolation of knowing that your wife and children wouldn’t be thrown out onto the street. Gives a whole new meaning to the phrase “take cover”.
The Scottish Ministers’ Fund grew into the world famous Scottish Widows. Even novelists, not renowned for their financial prudence, could join. Walter Scott took out a policy in 1826 to reassure his creditors that they’d be paid in the event of his death. By the mid-19th century, being insured was as much a badge of respectability as going to church on Sunday.
What no one anticipated back in 1744 was that the careful calculations of two Scottish ministers would grow into today’s huge insurance industry.
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