The first decade of a new century seems to
usher in a series of cataclysms for the United States and its citizens. Acts
of international terrorism and unusually devastating hurricanes head the list
of American catastrophes for the opening decade of this century. However, the
first years of the twentieth century also brought their own set of devastating
events, which stimulated the nation's insurance industry and business leaders
to respond in turn.
Bogardus and Robert Moore
the Risks: Insuring the American Experience
The early 1900s saw a series of extraordinary catastrophes. In September
1900, the booming Texas port city of Galveston was largely destroyed by a hurricane
that killed over 5,000 people and dislodged the city from its position of commercial
prominence. Civic and business leaders responded by championing the construction
of a 17-foot-high sea wall, which ran for almost 8 miles. Galveston's grade
was likewise raised proportionately to the wall's height.
In 1904 a German-American church group in New York chartered the paddlewheel
steamboat General Slocum for its annual
picnic on Long Island. When fire broke out in a forward cabin, years-old life
jackets crumbled, and lifeboats wouldn't budge from their cradles. As fire spread
aft, the ship ran aground, its bow aflame and its stern in deep water of the
notoriously swift-moving East River. Frantic passengers crowded the decks; faced
with death by fire or water, many jumped with their clothes aflame and drowned,
to later be washed ashore. The death count reached 1,021; the captain was jailed
for safety violations.
Fire insurance accounted for most agent and broker revenues in the early
1900s. Huge conflagrations occurring ever more frequently were widely reported
and boosted interest in coverage. Individuals and commercial enterprises were
increasingly receptive to fire insurance.
Chicago's 1903 Iroquois Theater fire on December 30 claimed 602 lives. The
tragedy led to much more stringent theater safety codes in the United States
as well as all over the world. Less than 2 months later, a great conflagration
in Baltimore consumed 80 blocks, producing a staggering financial loss. Even
though many of Baltimore's buildings were stone or brick and considered fireproof,
the city's business center was destroyed with losses of $70 million to $90 million
(of which some $50 million was insured). Firefighting assistance was sought
from as far away as New York City, but to little practical purpose because the
outsiders' hose couplings did not fit Baltimore's hydrants and hoses. Hydrant
and hose couplings were subsequently standardized as a result.
The San Francisco earthquake of 1906, which measured 8.3 on the Richter scale,
caused destruction for 400 miles. It destroyed thousands of buildings. Its carnage
and astronomical dollar damage were caused by gas mains that exploded and stoves
that collapsed to spark fires, which roared through the city for 4 days, burning
almost unchecked because water mains broke too. Still, insurance covered about
half the estimated losses and provided some $200 million to start rebuilding
a magnificent city on California's great bay.
Understandably, the San Francisco earthquake commanded worldwide press coverage
and stunned Americans with a new sense of their vulnerability. More than 28,000
San Francisco buildings were destroyed, half of them residential. Approximately
5,000 were steel, stone, or brick; most others were made of redwood. Nearly
700 people were dead or missing, and another 300,000 were left homeless. Estimates
of losses ranged between $350 million and $400 million; only an estimated $180
million to $235 million was insured, with U.K. underwriters responsible for
There was much haggling over coverage terms. Some policies covered fire only,
but others included seismic shock. Thirty-seven insurers assessed stockholders
$32 million to meet liabilities. The INA and its recently established Alliance
Insurance Company paid over $4 million in claims. Fireman's Fund Insurance Company
stated it was the first major insurer to survive such massive destruction in
its home city. It paid half its claims of $11.2 million in company stock and
assessed shareholders $300 per share.
Despite such cataclysmic events, the insurance industry was able to respond
to the diverse requirements of an increasingly prosperous county. In the second
decade of the century, with more than 500,000 people driving cars, Charles Kettering's
electric starter was being introduced to replace the hand crank, and a new process
was invented to improve refining oil into gasoline. That same year, the Aetna
L&C pioneered an auto policy that combined liability, property, and fire coverages,
a forerunner of multiline policies.
Various coverages were also developed to meet other specific needs of the
day such as wind and tornado insurance. While available much earlier, this coverage
became especially popular among farmers. Hail insurance was widely marketed
by 1914, and crop protection became available by 1919. Rain insurance was initially
written in 1920. The first rain policy insured a rodeo in Dewey, Oklahoma. The
event was rained out, and the Hartford Fire Insurance Company paid the $2,000
Additionally, employee benefit programs began to receive national attention.
Early in the second decade, Montgomery Ward adopted the first group accident
and sickness policy. Shortly thereafter, the Equitable Life Assurance Society
issued the first group life policy to the Pantasote Leather Company of Passaic,
As our industry struggles to come to terms with the challenges of contemporary
disasters, we would be well served to remember that history has important lessons
to teach us about how our forebears responded to the threats and opportunities
of the early twentieth century. In light of the growing scrutiny of insurance
and the public's increasing skepticism about our commitment to their welfare,
an appreciation of our historic role in the country's social and economic development
Robert Moore has worked with Jack Bogardus for a quarter of a century. Mr. Moore worked for
Alexander & Alexander from 1977 to 1995 and served as a senior vice president
of Alexander & Alexander Services Inc., as well as chairman and president of
A&A Government and Industry Affairs Inc. In 1985 he was elected president of
the National Association of Insurance Brokers, and from 1989 to 1993 he served
as chairman of that organization's Past Presidents' Advisory Council. He has
written and spoken extensively on corporate issues. As The Conference Board's
emerging issues coordinator, he identified and responded to the business community's
public policy concerns. He is coauthor of School
for Soldiers: West Point and the Profession of Arms, which was selected
as a New York Times "Noteworthy Book."
Mr. Moore earned a bachelor's degree from Davidson College, a master's degree
from the University of North Carolina, and a doctorate from the University of
Wisconsin. Commissioned a U.S. Army officer, he taught at the Military Academy
at West Point and was an associate professor on the graduate faculty at the
University of Maryland. Jack Bogardus and Robert Moore are coauthors of the
award-winning Spreading the Risks: Insuring the
American Experience (2003) and the revised edition (2005). He can be
reached at 703-759-0233 and through the website www.spreadingtherisks.com.
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