Insuring Security

Biopolitics, security and risk

Luis Lobo-Guerrero

• Publisher: Routledge
• Year: 2010
• eBook ISBN: 9781136930478
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: City Planning & Urban Development
• Index: Politics & International Relations

Insurance is the world's largest economic industry, providing a form of security that more than triples global defence expenditure. However, little is know about the form of security insurance provides. This book offers a genealogical interrogation of the relationship between security and risk through its materialisation in insurance.

This work seeks to argue that insurance practices ascribe value to life and in so doing produce a form of security central to the understanding of contemporary liberal governance and security. Lobo-Guerrero theorizes insurance as a biopolitical effect that results from the continuous interaction of an 'entrepreneurial form of power', and traditional forms of sovereign security. Through rich empirical cases and a unique theorization, the book breaks apart the traditional division between security studies, political economy and political theory. The author explores this theory in relation to specific issues such as the use of life insurance in the molecular age, the use of insurance to securitize against environmental catastrophic risk, specialist products such as kidnap and ransom insurance, as well as the use of insurance to counter maritime piracy in the twenty-first century.

Providing an important and original contribution to the study of the biopolitics of security, this work will be of great interest to all scholars of security studies, international relations and international political economy.

Insuring War:

https://www.routledge.com/products/search?keywords=insuring+war

Insuring Life:

https://www.routledge.com/Insuring-Life-Value-Security-and-Risk/Lobo-Guerrero/p/book/9780415716079

1
Making uncertainty fungible

In the quaestio concerning insurance (contractus assecurationis), the Spanish Dominican priest and theologian Domingo de Soto (1495–1560) offered a social argument in favour of assecuratio while asserting that ‘trade is a fundamental factor of the common good’.¹ De Soto argued that the process of sharing risks with insurers ‘allow[ed] many merchants to start businesses that they would never even have considered because of the dangers of long-distance maritime travel’. He then went on to argue that ‘assecuratio is a necessary instrument of commerce, a financial practice that generates common good’.² Ceccarelli, writing on this issue, noted that

de Soto [was] not concerned with the religious implications that derive[d] from the economic exploitation of random events. God’s absolute power and his foreknowledge of the future [were] not threatened by the fact that some types of contracts [were] based on future events humanly unknowable.³

For de Soto, writing in the 1550s, the liceity of insurance was clear enough as there was already a well-established theological tradition that recognized it as such.⁴ Liceity is here referred to as the lawfulness of insurance in moral and religious terms.⁵

The well-established theological tradition that supported de Soto’s defence of assecuratio was, however, the result of a complex tension that took place during the medieval Renaissance in northern Italy. On the one hand, there was the pastoral order of governance of the Church, supported by an economic ethic and a shifting theological and canonical knowledge-base and, on the other, the changing demands of a mercantile form of life experiencing radical transformation within the context of the Commercial Revolution. This tension was represented in the promulgation of the decretal Naviganti by Pope Gregory IX in 1236. A decretal is a pontifical letter which formulates decisions in ecclesiastical law. Through this decretal the Pope explicitly forbade the use of a kind of insurance, the f

nus nauticum, considering it usurious practice, as will be explained below. However, although the Church struggled to enforce its ruling, merchants developed two new instruments to bypass the prohibition. The f

nus nauticum or sea loan evolved into the cambium nauticum or maritime exchange and later into the ordinary cambium contract in the form of an insurance loan which involved a third party and the payment of a premium. By means of the last instrument, the third-party form of insurance, merchants had developed a licit mechanism through which they could make uncertainty tradable and exchangeable. Using the third-party form of insurance, traders could insure against a future unknown event. The third-party form of insurance was the mechanism that made uncertainty fungible and became the foundation for modern insurance instruments still in operation.

One of the central moral problems for the Church during the period of the medieval Renaissance, and indeed the key problematic around issues related to the making of uncertainty fungible as periculum, was that of ‘usury’. The authoritative economic canonical definition of usury followed by medieval theologians came from Gratian’s Decretum, the systematic compilation of Church law completed in AD 1140.⁶ Usury is ‘to demand, to receive or even to expect to receive more in a loan (mutuum) than the sum lent (the capital). This excess may be in money or in kind (e.g. in wheat, wine or oil) or in some other favour (e.g. a gift or merchandise from a merchant)’.⁷ While ‘establishing that usury violates divine and natural law, Gratian invoked a conciliar tradition reaching back to the Council of Nicaea and beyond, a tradition largely preoccupied with condemning and punishing as ‘turpe lucrum’ (foul gain, filthy lucre) the clerical practice of usury’.⁸ O’Donovan described how the earlier theological explanations of the canonical prohibition on usury were integrated ‘through the leading themes of patristic economic ethics’.⁹

Among the Greeks, Clement of Alexandria, Cyprian of Carthage, Basil the Great, Gregory of Nyssa and John Chrysostom charted the economic landscape within which usury was understood, and among the Latins, Ambrose, Jerome and Augustine. The main concern was over the exploitation through ‘exorbitantly profitable loans’ of persons in need of consumption goods or ‘of the productive base for a livelihood.¹⁰

The very possibility of making uncertainty fungible, bypassing charges of usury, as will be analysed in this chapter, was not a simple matter. It involved a negotiation between forms of imagining and ruling God’s world and the development of mechanisms to protect trade as a condition of possibility for a merchant form of life. Wealth created through trade was supported on an ethic which rivalled the Church’s canon, hence the debate on usury. The process through which third-party insurance became morally and religiously accepted, documented by Pesce,¹¹ Bergfeld¹² and Spagnesi,¹³ is a process whereby a form of life which does not arise from a pastoral or a sovereign form of power exercises a form of power that challenges and modifies a pastoral sovereign order. In the late twentieth century, Michel Foucault would refer to biopower as the form of power through which the life of populations, population understood as species-life, is made to live through the implementation of a political science. He would interrogate the emergence of this form of power in the late seventeenth and early eighteenth centuries in Europe. However, what the emergence and subsequent use of third-party insurance indicates is a case of a thirteenth-century merchant form of life developing a security instrument to promote and protect its own way of being in the world. The form of power employed in the process, one that seeks to develop its own security instruments under conditions of radical uncertainty and which, for want of a better term, is called in this book ‘entrepreneurial power’, differs from Foucault’s biopower in that merchants were not a population derived from sovereign decisions on how to understand subjects and objects of governance. The merchant way of life involved in the third-party form of insurance, although intimately linked with the order of governance of the Church, imagined and sought to govern a world in which merchant’s security arose from their capacity to trade, as well as from alliances with sovereigns and the Church. In this respect, Gregory IX’s decretal Naviganti was a form of resistance against an ethic that rivalled the Church’s order of governance. This ethic of insurance had, of course, a long tradition.

It is commonplace to argue that Babylonian, Hindu,¹⁴ Phoenician, Greek and Roman civilizations all developed insurance systems that ‘corresponded in most essentials to written contracts used some 2,000 years later in marine ventures to the New World’.¹⁵ Life insurance, for example, has, if controversially, been argued to have existed in one form or another since as early as 5000 BC. Benfield commented that at that time a rudimentary form of insurance existed in China by which boat owners found it advantageous to redistribute their cargoes into several boats as they approached treacherous river rapids or on long sea voyages. If one boat was lost, all the boat owners shared the loss and hence no one faced financial ruin.¹⁶ According to Trenerry, writing in the 1920s, the ancient Egyptian and Chinese civilizations left evidence of burial societies and other insurance activities in their communities.¹⁷ He described how, at the time of the first Babylonian Empire, about 2500–2250 BC, organized commerce had already devised risk-spreading systems by which losses derived from robbery or attack over property, perhaps even the life of slaves and of merchants themselves, could be compensated by forms of insurance that resembled contracts of bottomry. Contracts of bottomry operated in the form of a loan in which, effectively, a ship or its cargo was hypothecated as a security.¹⁸ The loan would be paid, with an added premium, only if the voyage was completed. In Babylonian times these practices became codified by King Hammurabi (1792–1750 BC)¹⁹ and, indeed, clauses 100–107 of the Code of Hammurabi legislatively regulated transactions between merchants, brokers and agents in relation to loans on interest to be repaid on the day of the settlement. It also established the requirement to issue and demand receipts for transfers of money and made legal provisions in the absence of mercantile arrangements. This ancient legislation clearly resembled, in elementary form at least, the later contracts for loans on bottomry in that,

firstly, […] the repayment of the loan was dependent on the safe arrival (as far as robbery was concerned) of the merchandise representing the advance, and secondly, that the rate of interest charged for such loans was very much higher than that charged in ordinary loans.²⁰

There has, equally, been much speculation about the Greeks and Romans having developed and used forms of insurance. In 1945, Florence de Roover wrote that ‘most authorities on the subject agree that marine insurance was unknown to Greek and Roman antiquity’ and that the brevity and generality of the work of Trenerry does not contribute to a solid historical proof of the existence of such instruments.²¹ However, there seems to be proof that these civilizations did in fact develop complex forms of insurance in direct relation to ‘life’. Benfield made reference to the case of excavations in Milete (Asia Minor) which suggest that a form of annuity was in operation as early as the year 2052 BC, when

citizens paid 3600 drachma into a common fund and in return received 30 drachma per month for life. On death, any balance remaining reverted to the fund except for 150 drachma which was paid to the next-of-kin to provide for funeral expenses.²²

Benfield also provided another illustration of the Greek knowledge of the principles of life insurance.

The Eianoi and The Thiasoi in ancient Athens were benevolent societies established and maintained by contributions from members. They later developed into societies providing for the payment of burial expenses and the immediate needs of deceased members’ dependants.²³

Trenerry suggested that there was direct evidence that proved the existence within the Roman Empire of a ‘widely extended system of mutual insurance’ carried out by the burial clubs (e.g. the Collegium Cultorum Dianae et Antinoi et Lanuvium) and possibly of societies for ordinary insurance. Indeed, as he argued, some terms of insurance were already incorporated in certain passages of Roman civil law.²⁴ However, not much is known about the systems through which they would have calculated risks. Trenerry suggested there might have been some form of imperfect system to measure mortality and that it might have been used as a means to allocate proportional premiums to the class of risk.²⁵ It is possible that Ulpianus’s tables were such a system. Domitius Ulpianus, serving as Roman prefect and jurist around the first decade of the third century AD, perfected the compilation of information by which an estimate of the length of a person’s life could be made.²⁶ His tables were to be used as the sole source of mortality rates in Europe up until the late seventeenth century, when Edmund Halley developed a new mathematical system.²⁷

Regardless of the controversy about the existence of insurance instruments prior to the thirteenth century, it was at this time when the practices of insurance evolved into its third-party premium form. Between the end of the thirteenth century and the end of the fourteenth, insurance changed from being a clause included in contracts and became the main object of the agreement.²⁸ As Ceccarelli described it, following De Roover,²⁹ Perdikas⁶⁰ and Boiteaux:³¹

this break was evident in the evolution of agreements in which security (particularly the safe arrival of the cargo of a ship) was simply an additional clause inserted into another contract (insurance loan), to pacts in which security became the main object of the agreement itself.³²

Making security the main object of the agreement constituted insurance into a fundamental instrument to foster a way of life reliant on trade. The third-party form of insurance, which transformed uncertainty into fungible matter, became a fundamental condition to promote and protect the acquisitive spirit of the merchant people.

This instrument is central in the understanding of the history of liberalism in its forms of power, economic theories and doctrines, as well as the way liberal forms of life secure themselves. It has been important in theoretical debates in the context of the Reformation, particularly in Luther’s thought in the sixteenth century.³³ As argued by Odd Langholm, contemporary understanding of economics and theories of value and money relate in one way or another to the development of these twelfth- and thirteenth-century debates.³⁴ The emergence of the third-party form of insurance and the decretal Naviganti around which it developed are the empirical space interrogated in this chapter to understand the relationship between insurance and security for historical and contemporary mercantile forms...

Table of contents

• Interventions
• Contents
• Preface and acknowledgements
• Introduction
• 1 Making uncertainty fungible
• 2 Securing by capitalizing life
• 3 The quest for insurability in the molecular age
• 4 Securitizing catastrophic environments, insuring uninsurable lives
• 5 Kidnap and ransom insurance1
• 6 Insurance and the securitization of global maritime circulation1
• 7 Valuation–subjectivity–security
• Notes
• Bibliography
• Index