The Insurers Who ALWAYS Paid Out: The Lloyds of London Story Part I

0:00This message is a paid partnership with AppleCard. There's something interesting about how seamlessly certain tools fit into daily life. Apple Card is one of those things. It can be applied for right in the wallet app on iPhone, and approval can happen in minutes. So it's ready to use immediately with Apple Pay. I'm so glad the days of finding my wallet, fishing out the credit card, using it, putting it back in my wallet, or oops, maybe I use cash, where's the ATM? Enough. The first time I used Apple Pay on my phone with my Apple Card, I was like, this is the future. There's no going back. With Apple Card, purchases earn daily cash up to 3 % with no points to track and no waiting for rewards.

0:45It's simply daily cash back that I earn on every purchase. There's even an option to open a high-yield savings account through Apple Card. And while I haven't done it yet, if I do, my daily cash can grow automatically over time without any extra effort. Because Apple Card lives in the Wallet app, it's always accessible on iPhone and can be used with Apple Pay at over 85 % of merchants in the U.S. And the security of Face ID and Touch ID prevents unauthorized purchases, whether using iPhone or Apple Watch. To explore it yourself, you can apply for Apple Card in the Wallet app on your iPhone. Subject to credit approval, savings is available to Apple Card owners subject to eligibility.

1:31Savings and Apple Card by Goldman Sachs Bank USA, Salt Lake City Branch, member FDIC, terms and more at applecard.com. Run a business and not thinking about podcasting? Think again. More Americans listen to podcasts than ad-supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined. Learn how podcasting can help your business. Call 844-844-IHEART. Peace to the planet. Charlamagne Tha God here. And listen, we are back. The Black Effect Podcast Festival is back in Atlanta on April 25th at Pullman Yard. Yeah. And the full lineup is nuts.

2:06We got the Grits and Eggs podcast, Deontay Kyle and Big Ice Cup Cat. We got Club 520 with Jeff Teague and the gang. Yeah, yeah. Don't call me white, girl. Mona will be there. Keep it positive, sweetie, with Crystal Renee. We got Reality with the King with Carlos King. And yes, Drink Champ will be in the building. Plus, you know we're going to have a lot of guests, so you need to join us. And we got the Black Effect Marketplace, the picture podcast, and everything you expect from the Black Effect Podcast Festival. Tickets are on sale right now. Go get yours at blackeffect.com slash podcast festival.

2:38Don't play yourself, okay? Pull up.

2:50Pushkit. Too quick? No, it was perfect. Pushkit, stop. You got it.

3:07Robert Smith. Robert Smith. Robert Smith. Yes, sir. Get excited. Yes, sir. Because we're doing Lloyds of London. Yes. We're going 300 and plus years. We're going from Edward Lloyd the man selling coffee for a penny a cup in the 1680s into the 20th century when Lloyds ensured Bruce Springsteen's voice in nuclear power plants and satellites all the way up to the moment when Lloyds almost took down the global economy with it. Too much for one show. So we're doing two. I'm Jacob Goldstein. I'm Robert Smith and this is Business History. About the history of business, today is the first of two episodes about Lloyds of London.

3:46One for each L. Nice. It's the llama of insurance. The Lloyds story includes, but is not limited to, the Enlightenment, coffee, war, prediction markets, earthquakes, the Titanic, asbestos, Pink Floyd, and the Queen Consort of England. May she reign forever. Also. What? There's more? I wrote a clickbaity headline for our nerds. But the way Lloyd's used unlimited liability will shock you. Like, like, like. Subscribe. Smash that subscribe button. Robert, before we get into the Lloyd story, let's talk about insurance for a minute, as we have talked about insurance on many occasions over many years.

4:27I love insurance. I love insurance because it has all of the global forces of economics, all of the incentives, the risk. It all boils down to one industry that writes in very small type. The smallest. The finest of prints. The finest of prints. And really, I think it's not overstating it to say insurance is a way of thinking about the world, right? It's a worldview, and it says the world is not fundamentally random and chaotic, right? It's fundamentally predictable, given enough data, enough numbers, right? The insurer says to you, show me one million people. Give me some basic information about who they are, how old they are, etc.

5:07And I can tell you, to a pretty good approximation, how many of them will die next year. And more than that, if an economy is going to grow, if the world is going to grow, people have to take risks. And that's scary. You know, you have a lot of hope, a lot of optimism. You need someone in the room to say, I did the math. This is exactly what the risk is. And I can take some of that risk from you. Yeah. And truly, you couldn't have the modern world without it, right? You couldn't have container ships without insurance. You couldn't have satellites. You couldn't have a concert at a stadium. None of that would happen if you didn't have insurance.

5:42And clearly, I'm going to say clearly, the most interesting story in the history of insurance is the story of Lloyd's. Ready? Here we go. Buckle up, as they say on the AI podcast. It starts in the late 1600s in London. And at the time, London's hottest clubs were coffee houses. Coffee was new to London at the time, new to England, just been there for a few decades. And, you know, it's this very exciting moment, right? It's the enlightenment. It's the moment when ideas are starting to spread and to grow. And coffee is really central to that. Coffee and ideas, they go together. In fact, they called coffee houses penny universities because for a penny, you could go to the coffee house, get jacked on caffeine and learn from the people around you.

6:31And different coffee houses kind of then as now, but I think even more, had different sort of intellectual specialties, like the clergy hung out at the coffee house near St. Paul's. There was one on Exchange Street where the brokers hung out. That actually ultimately became the London Stock Exchange. There was another one where the guys from the Royal Society, including Isaac Newton, was like inventing calculus, hung out. And then down by the Thames, by the river, by the customs house, there was Edward Lloyd's coffee house. Which was a place where captains could go, right? And people who worked on ships.

7:04Yes, yes, naturally. They just went there because that's the coffee house in the neighborhood. Edward Lloyd was, you know, he was not a merchant. He was not a shipping guy. He was the son of a knitter, framework knitter, decided to get into the coffee business in the 1680s. And because of the location of his shop, it became this central hub for shipping. And it did well. And a few years after he opened the shop, he moved up to Lombard Street, which is kind of like the Wall Street of London. So now he's at the nexus of shipping and finance, which is a good nexus to be at in London for any time from 1680 to, let's say, 1914, right?

7:46It's what is going to build the British economy, finance plus shipping. And Lloyd's is right there. And it's exactly what you need for the birth of insurance, information and money coming together. Yeah. And the information piece is really central. And Edward Lloyd saw it, right? He wasn't an insurance guy, but he understood that that's what people were coming for. His coffeehouse was just a room, you know, 40 feet by 50 feet, sand on the floor, big tables. But Lloyd started consciously adding information to the mix. He actually started publishing just a little newsletter, we would call it today.

8:26It had two sections here. I wrote them down. Say, read the names of the sections. Okay, the sections are, number one, ships arrived at and departed from several ports of England, as I have a count of them in London. One, domestic news. An account of what English shipping and foreign ships for England I hear of in foreign ports. Two, foreign. And I love that both of them are like, I don't know, it's what I heard. It's gossip. It's just what we do. We think ships are coming. A few decades later, it morphs into something called Lloyd's List, which is in fact still published today. You can go to LloydsList.com.

9:02Here, do it. Tell me what you see. I'm pulling it up. And not surprisingly, it's all about the Middle East. Oh, just brought me up. Dismiss. I don't want to register. Fallout will ripple across globe amid Strait of Hormuz doomsday scenario. So this is a version of an account of what English shipping and foreign ships for England I hear of in foreign ports. So Lloyds is bringing the information into the coffeehouse. The merchants are there. The sailors are there. He actually starts having auctions at the coffeehouse. And the particular way they do it is pretty delightful. They called them candle auctions.

9:38So say they were auctioning a ship, which was a thing they would auction off there. They would light a candle, the bidding would begin, and it would continue until the candle burned all the way down and out, which is drama that I love. Like, presumably, everybody's looking at the candle, you know when it's going to end. And they're trying to decide to come in at the last minute with a slightly higher bid right before the candle goes. You wonder if somebody makes the bid and it's like. So Lloyd's is just a coffeehouse where these people are hanging out, where there's information. and organically insurance starts happening there.

10:14You know, a ship owner wants to protect himself against loss if the ship sinks or gets captured by pirates. He tells his coffee mates, oh, I have this great opportunity, but you know, I don't know. If I lose this ship, I lose everything, I'm probably not going to take this tremendous financial opportunity. And someone comes in and says, well, I can help insure your ship for you. I can share the risk. Yes. And insurance is a thing by this point. They're not inventing it at Lloyd's. And the way it basically works is someone with a ship will write down on a piece of paper, you know, the value of the ship or the cargo, the nature of the voyage.

10:53That's basically it, right? Like, what is it? How much is it worth? And we'll take that piece of paper around to the tables at Lloyd's where these, you know, financiers, merchants are hanging out. And the merchants who want to ensure part of the risk will write their name underneath the slip, you know, at the bottom of the description. And often they'll share it. So, like, one merchant will be like, yeah, I'll take 10 percent. You know, it's like a thousand pounds worth of stuff. I'll insure a hundred pounds of it for some price. And so these guys, these merchants, writing their name underneath the description come to be known as underwriters.

11:35Isn't that nice? That is great. Or from the Italian, subscribers. Love that one. Yeah. Yeah. Subscribere or something. That they may have been using in Italy already, right? This is not a new system. And in fact, in fact, insuring ships more generally is truly ancient. As far as I can tell, the first kind of insurance was for shipping. It's been around for thousands of years by the time Lloyd's gets going. The earliest insurance we know of comes from the Code of Hammurabi. No. 1750 B.C., Babylonian legal code. This is the oldest we've gone, I think, so far. The one to beat. On business history.

12:14The one to beat. And that insurance was something known as bottomry. And the way it worked was someone, say, call them a merchant, could borrow money to fund a sea voyage. So you borrow the money, whatever. You buy your stuff, you hire your crew. If the ship is lost, you don't have to pay back the money. But if it returns successfully, then you pay it back with interest. And that interest is effectively a premium. It's what the insurance premium is. And it makes sense. It makes sense that insurance should start with ships because ships have really the two things you want for an insurance market.

12:55One, something that's so valuable that you'd be totally screwed if it was lost. And two, it's facing a risk that is fundamentally quantifiable. There are lots of ships going on, you know, similar voyages. So you can, even before there's mathematical probability invented, people have a rough sense of the probability of loss. So if you multiply the value times the probability of loss, that tells you basically how much you should charge for your premium. That's what you need for an insurance market. And I'm going to add a third one, which is there is a definable outcome. Aha, nice. The ship arrives or it does not.

13:33And then your contract can be exercised. Yes, you don't need a bunch of lawyers saying there is a ship or there is not a ship. Although that will emerge later. So Edward Lloyd sets up shop, becomes the hub of the marine insurance business in London. Sells a lot of coffee. Sells so much coffee. And I want to be clear, because this is one of the most interesting things about Lloyd's. Lloyd's itself never becomes an insurance company. It's a marketplace, right? It's a place where people selling insurance and people buying insurance come together. Like think of a stock exchange, but for insurance.

14:07That's what it is and what it always will be. Edward Lloyd died in 1713. Coffeehouse passed down through his sort of family, through various owners. And over the years, over the decades in the 1700s, something really interesting happened to the insurance market at Lloyd's. And that is it went from being this useful service, insurance, to being a market for rampant speculation. Almost like this happens anytime there's a market, but go on. Yes, yes. Which is kind of reassuring, right? Everybody's like, oh, the world today. No, in fact, in the 1700s at Lloyd's, people start taking out insurance policies on voyages where they have no financial stake.

14:51They're just sitting there being like, oh, that guy's ship? It's finished. I saw a drunk captain. I'm taking out insurance on that guy. They even start taking out life insurance policies on random people, like some guy on trial for treason, they'll basically be betting that he's found guilty. And they invented Calci and Polymarket. Yes, prediction markets, right? Yes, we call this prediction markets today. And interestingly, everybody is like, oh, it's because the world is so bad today. Everything is so financialized now. No, the world has been kind of gross and financialized for 300 years, actually more.

15:30We recently did a prediction market story and it actually goes back even farther. There are people who argue that what was happening in the coffee shop may have some positive effects. If someone knows the captain is drunk, goes and takes out a policy on him, you're at least sharing information. That is information and that's what you're in the coffee shop for. So that's the pro-prediction markets argument. That's fair. There are lots of people today and then who say it's just gross and bad and not doing what insurance is doing. And crucially at Lloyd's, some of the underwriters, some of the people who were doing their business there, hated this prediction market thing and decided to get out and create what would become the Lloyd's we know.

16:12That is after the break.

16:25This message is a paid partnership with Apple Card. There's something interesting about how seamlessly certain tools fit into daily life. Apple Card is one of those things. It can be applied for right in the wallet app on iPhone, and approval can happen in minutes. So it's ready to use immediately with Apple Pay. I'm so glad the days of finding my wallet, fishing out the credit card, using it, putting it back in my wallet, or oops, maybe I use cash, where's the ATM? Enough. The first time I used Apple Pay on my phone with my Apple Card, I was like, this is the future. There's no going back. With Apple Card, purchases earn daily cash up to 3 % with no points to track and no waiting for rewards.

17:11It's simply daily cash back that I earn on every purchase. There's even an option to open a high-yield savings account through Apple Card. And while I haven't done it yet, if I do, my daily cash can grow automatically over time without any extra effort. Because Apple Card lives in the Wallet app, it's always accessible on iPhone and can be used with Apple Pay at over 85 % of merchants in the U.S. And the security of Face ID and Touch ID prevents unauthorized purchases, whether using iPhone or Apple Watch. To explore it yourself, you can apply for Apple Card in the Wallet app on your iPhone. Subject to credit approval, savings is available to Apple Card owners subject to eligibility.

17:57Savings and Apple Card by Goldman Sachs Bank USA, Salt Lake City Branch, member FDIC, terms and more at applecard.com. Run a business and not thinking about podcasting? Think again. More Americans listen to podcasts than ad-supported streaming music from Spotify and Pandora. And as the number one podcaster, iHeart's twice as large as the next two combined. So whatever your customers listen to, they'll hear your message. Plus, only iHeart can extend your message to audiences across broadcast radio. Think podcasting can help your business? Think iHeart. Streaming, radio, and podcasting. Let us show you at iHeartAdvertising.com.

18:33That's iHeartAdvertising.com. On the Serving Pancakes podcast, conversations about volleyball go beyond the court. Today we have a little best friend compatibility test. Okay, how long have we been best friends for? Since the day we met. As the League One volleyball season heads towards its final stretch, there's no better time to tune in. We really are like yin and yang, vodka and tequila. You'll hear unfiltered analysis, behind-the-scenes stories, and conversations with leaders making an impact across the sport. Today, we have Logan Lednicki. I feel like our fan base in general is very connected.

19:04It's like a comforting feeling getting to play at home. Whether you're following the final push of love season or just love the game, Serving Pancakes brings you closer to the action and the people shaping the future of volleyball. Jordan Thompson had that microphone out. God forbid we make mistakes or cuss at our coach. Like when time works. Open your free iHeartRadio app, search Serving Pancakes and listen now. This has been Serving Pancakes and we'll catch you on the flip side. Okay. Presented by Capital One, founding partner of iHeart Women's Sports.

19:46So it's the 1760s, and some of the underwriters at Lloyd's think the whole prediction markets thing, I didn't call it that then, is a bad look. And not just in a, you know, these degenerate gamblers are making us look bad kind of way. Because of the nature of insurance, right? In a normal business, you pay your money, you look at the merchandise, it's fine, you walk away. and that's the end of it. But insurance is not like that. In insurance, you pay your money and then you go away for a month, six months, a year. And if your ship sinks, you come back and then you have this giant claim. It's a relationship.

20:25You have to be able to find the underwriter after something goes wrong. You have to trust. You have to trust that they're going to be around and they will give you the money. And so, you know, reputation always has some value in business. But in insurance, reputation is profoundly important. And so in 1769, a bunch of underwriters who are worried about their reputation decide to separate themselves from the gamblers at Lloyd's, break away to a new coffeehouse. They leave Lloyd's. They set up a new coffee shop that they call New Lloyd's. Wow. Three L's. So they're first in the phone book. L-L-Triple-A Lloyd's Insurance.

21:09It's like Ray's. Remember Ray's Pizza in New York? Yeah. It was original Ray's. There still is. Famous original Ray's, maybe? Famous Ray's? I don't know. The old Lloyd's actually kind of atrophies disappeared. So new Lloyd's just becomes Lloyd's. And by the way, the sort of prediction market type gambling, that actually gets banned by law. And then a couple years after that initial split, 79, I believe it's 79 of these merchants and underwriters who've gone to start new Lloyds, they take an even more important step. They decide, like, we're not just a bunch of people who happen to work in the same room in the same coffee shop.

21:49We are something more than that. Not exactly a company. We don't work for some boss. But we are what? We're an association. where, you know, they come to be known later as the Society of Lloyds. And so they create a set of rules that they all agree to abide by. And they actually have a leader who emerges at this time, not a boss, because they don't have a boss, but a guy who's clearly kind of bringing them together, making them something more than a bunch of people who happen to work in the same room. Like this guy is, I was going to say he's the first key figure in the history of Lloyds, but I guess Lloyd was the first key figure.

22:26So he's the second key figure. His name is John Julius Angerstein. His name was my name, too, and whenever we go out, people will shout. John Julius Angerstein was born in St. Petersburg, Russia, moved to London as a teenager, started hanging out at Lloyd's, doing a little underwriting on the side, as people did. And John Julius Angerstein was very good at pricing risk, which is the essential skill for an underwriter. Do we know why? Was he better at math? Don't know. Don't know. Just know that he kept getting it right to the point where the policies he wrote became known as Julians. Ooh, gold standard.

23:03Yeah, like a brand. And everybody else was eager to, like, get in on them. You know, underwriters would share risk. So he actually started this thing at Lloyd's where there would be a lead underwriter. The first person who underwrote it would set the premium. And then everybody else would just be in or out. Yeah, and if John Julius is your lead underwriter, you're like, this is easy money. This is easy money. He knows how to price risk. And Lloyd's is rising in stature now. and they decide, you know, coffee house isn't going to do it. And so they all put up 100 pounds to find a new location and they move to the Royal Exchange, not a stock exchange, but kind of a commercial building.

23:38Queen Elizabeth had opened it a couple hundred years before this. And this is where Lloyd's becomes, you know, the Lloyd's of London that we know, the place where everybody goes to insure a ship or the goods on a ship. You had to bring your own coffee. You had to, I don't know if you had to bring your own coffee. There might have been a kitchen there. Don't know about that. And now Lloyd's is highbrow. It has become highbrow. Angerstein is friends with Nelson, the naval hero, with Pitt, the prime minister. He collects Renaissance paintings. In fact, after he dies, a bunch of his paintings become like the nucleus of the National Gallery in London.

24:18And he has, John Julius Engerstein has this one moment that is his like signature moment. And it comes in 1799 when there's a financial crisis in Hamburg, what is not yet Germany. And London bankers want to step in to prevent the crisis from spreading. There's no central banks really yet at this point. And so the bankers get together a bunch of gold and silver that they're going to lend to the bankers in Hamburg to try and stop the crisis there. The gold and silver is loaded onto a ship called HMS Lutine that had been won from the French earlier. Fun. It's a ship. It's a ship. Loaded with gold and silver setting out on the high seas.