Preamble: Culture, Trust and Risk

Unlike commodity trades, where the object of exchange is visible and tangible, insurance is a business based entirely on trust and expectation. Money is handed over in return for a promise to pay back a larger sum in the future, contingent upon the occurrence of an uncertain event, or in one unique case – death – contingent upon a certain event occurring at an uncertain point in time. In the case of whole-term life assurance, for example, the insured by definition will not be around to ensure that his or her claim is paid. Trust in the individual or institution selling the insurance product therefore has to run deep. The purchaser has to have confidence that the product is fairly priced – a much more complicated problem than the pricing of most commodities – and that the insurer will remain solvent over the duration of the policy. The seller has to have confidence that the risk taken is an insurable one and that the moral hazard embodied by the policyholder is at an acceptable level. Why, therefore, should such a business ever take place beyond the boundaries of local communities or outside close-knit groups characterized by high levels of transparency and reputational knowledge? How and why did this trust-based invisible product become traded over long distances and across political, ethnic, religious and cultural borders, and, since the early nineteenth century, in such vast quantities?