Tuesday Talks with Brian Etherington: Risk Management-Ancient Origins & Modern Application

The transference or distribution of risk had its origins from Chinese and Babylonian sea traders in the 3rd Millennia BC who would redistribute their cargo across many vessels to mitigate loss from the sinking of any one vessel.

1,000 years later the merchants of Rhodes created the principle of  “General Averages” whereby a premium would be collected from all to reimburse any one merchant for loss of goods via sinking or storm.

The Greeks and Romans created the first “Benevolent Societies” in the 6th Century BC to care for the families of deceased members and paid for their funerals.

The first life insurance policy ever recorded was established in Genoa in 1347 – backed by assets of Estate owners. In the 1680’s, Edward Lloyd’s London Coffee House was the scene of maritime risk evaluation amongst shipowners , merchants and sea captains and the forerunner to Lloyd’s of London, founded on the principle of maritime insurance whereby risk was separated from investment.
The Great 1666 Fire of London led to the insuring of timber framed houses via “The Fire Office” created in 1680. Scottish actuaries subsequently calculated the funding for Benevolent Societies, Guilds and Friendly Societies’ benefits on mortality tables and life insurance risk management became a common and increasingly sophisticated financial instrument in post Renaissance Europe.
In the late 19th Century the first personal “accident insurance” was underwritten which evolved into disability insurance as we know it.
So what could possibly be new today given the ancient origins of risk management?
Whilst the prudence of the principle of transferring or distributing risk from the few to the many has only strengthened over the centuries – never before has it been so affordable to both mitigate risk and ensure that a reasonable percentage of one’s greatest asset – one’s economic human life value – is replaced in the event of death, sickness, accident, disability or retirement.
In a perfect world we are  going to live for a long time  and then elect to then “quit” i.e. retire on the fruits of our human economic life value or the accumulated assets of our working years.

In the real world, disability, sickness, accident and or premature mortality interrupts that accumulation.In spite of the narrow risk transference tools at their disposal – the Chinese, Babylonians, Greeks, Romans and Europeans kept coming back to the need to offset risk.  Today we have much more sophisticated tools to narrow the gap.

 Brian Etherington is the Chairman at Etherington Generations; a risk management firm that specializes in family life insurance and estate planning. He was appointed a Member of the Order of Canada in 2004 and a recipient of The Queen’s Golden Jubilee Medal in 2002 for community service, as well as The Queen’s Diamond Jubilee Medal in 2012. He is a Founding Chair of the Special Olympics Canada Foundation  and a chair on the advisory council for the 2019 International Youth Games presented by Special Olympics Ontario.