Wednesday, April 27, 2011

History: Piratical Insurance

I did the corporate grind, as they like to call it now, for something like fourteen years and all of that working for the same workers’ compensation insurance company. Initially it was a way to pay for college but I got good at it and eventually carved out what must have looked like a nice career. Because of my knowledge – and the first mate’s as well – of the WC system, I have always maintained that pirates were the first providers of work comp in history. Apparently, the insurance industry now agrees with me.

The first mate sent me this article yesterday regarding the 100th anniversary of the first WC law in America, enacted in Wisconsin in 1911. The author, an insurance attorney, points out that:

Pirates in the 18th century looking to protect their employees (scurvy mates) from a loss of income (booty) as a result of job-related injuries (there were many) instituted the precursor to modern day workers’ compensation laws.

Even with the farcical tone, the point is very well taken as well as accurate. Perhaps my only issue with that statement would be the “18th century” exclusion. Ship’s articles delineating remuneration for lost time, lost limbs and even loss of life continued into the 19th century. The finest but perhaps the last example of pirate work comp was authored by Jean and Pierre Laffite and applied to both their Barataria and Galveston operations. In fact, these articles were even more broad and inclusive than those of 18th century pirates. Captains like John Philips and Bartholomew Roberts had signed articles, of course, but they only applied to their own ship and perhaps a small group of accompanying prizes. The Laffites’ articles, which should more properly be called commissions, were required to be carried by any captain who wanted to do business with the brothers.

These commissions became almost excruciatingly detailed, naming specifics such as what color flag a ship was expected to fly when it entered the Laffites’ bay (particularly at Galveston) and where it might anchor. Percentages of prize profits were meticulously dolled out to captains, officers, ship’s owners, crews and the Laffites with no room for negotiation. Commissions were executed in triplicate and captains were expected to sign a new one each year with the expectation that each point would be strictly adhered to. The brothers ran a take it or leave it operation and Jean in particular was not above simply revoking a commission and kicking a privateer to the curb if anything shady went on.

Specific percentages were set aside for those injured. These, which generally appear as five percent of total prize value, were turned over to Jean or one of his lieutenants and held for future use. Any man injured in the taking of a prize or the working of a ship would be paid out according to his injury. An eye, for instance, was of more value than a thumb but an arm netted more than an eye.

The Laffites’ commissions were unique in that they also provided for the living relatives of a man who died at sea. There were certain parameters around this – death by suicide or in a duel were specifically excluded, for instance – but generally speaking a man who lost his life in service to his ship could expect any family he had to be taken care of.

More than one interesting point can be raised here. First, although surely the majority of men who sailed on Laffite ships had no family at all, there were enough who did to warrant inclusion of the point in the first place. This gives us an idea of the settled nature of the communities that grew up around the Laffites’ operations. Second, this clause in their commissions speaks volumes with regard to the Laffites’ business savvy and insurance underwriting skills. Of course it was a calculated risk, but if only one in ten men had a relative to claim their death benefit, then a profit could be made.

Perhaps one could go so far as to say that Jean and Pierre Laffite, in their time and turn, went further than simply providing for their men and developed the seed of modern insurance risk taking. At least we can say that their structure of risk vs. retention is the nature of insurance even today.

Header: foundation of what is believed to have been Jean Laffite’s “Maison Rouge” in Galveston, Texas


Timmy! said...

Ahoy, Pauline! And I'll bet they did it without a bunch of nerdy actuaries telling them they had to get rate increases because their loss development factors were too low and they weren't funding properly for excess losses... let alone having to deal with Reinsurers, Home Office/Senior Management and the dreaded Human Resources Department.

Just sayin'.

Pauline said...

Ahoy, Timmy! I tell you right now they were all those things for themselves. Actuarial consisted of Pierre saying "Jean, we need cash." Human resources consisted of Jean kicking jerks in the butt, literally.

And that is how we do business on the bayou, mon ami!

Ncci codes said...

Hi there, thank you for taking time to talk about the history of piratical insurance. Appreciate it.
Chris Harris

Pauline said...

Ahoy, Chris! My pleasure; thankee for stopping by.