The need for insurance becomes most apparent after a major disaster, so disasters tend to be nurturing of innovation in insurance. London’s Great Fire of 1666 was one such disaster. Not only did the destruction require the rebuilding of much of the city, it also prompted the development and proliferation of fire insurance, hitherto little heard of. One man, Nicholas Barbon, was involved in both projects, the redevelopment of London and the introduction of fire insurance, sold at scale to London property owners.
Great Fire of 1666
London at the start of the 17th century had been neglected. The city had grown along no urban plan, its center was marked by a decaying cathedral with a collapsed spire, and complaints of poor air were already common. It was not all due to disorganization; London had also been purposely deprived of investment. Queen Elizabeth I had encouraged the aristocracy to live outside the capital, partly on the assumption that a scattered aristocracy would help police the countryside.
An opportunity to rebuild the city presented itself with the Great Fire of London, burning down most of the city within the walls and parts outside, in September 1666. The fire destroyed 13,200 houses, 87 churches, and many public buildings. The Building Act of 1667 implemented in its aftermath specified that buildings be built in brick and stone and to spur quicker rebuilding, allowed tradesmen to work outside a guild. Special courts were also established after the fire to handle disputes related to the cataclysm between landlords and their tenants.
One of the most important figures in London’s post fire rebuilding was Nicholas Barbon. Barbon was born in London in 1640. The son of the radical preacher Praise-God Barebone, Nicholas Barbon was actually born ‘Unless-Jesus-Christ-Had-Died-For-Thee-Thou-Hadst-Been-Damned’ Barebone but preferred to go by Nicholas instead.
A nonconformist Protestant, Barbon would have been denied entry to an English university so he studied medicine on the continent at Leiden and Utrecht. After his studies, he returned to England in 1664 where the extent of his practice in medicine is uncertain. He does seem to have worked in one of the quarantined plague houses that ringed London during the London Plague of 1665. In any case, this was short-lived because the course of Barbon’s life was changed with the Great Fire the following year.
Barbon’s family home in London was destroyed in the Great Fire; located near the westernmost extent of the western-moving fire’s destruction, the Barbon house may have been one of the last in the city to be lost. Barbon’s house had stood on leased land and responsibility for rebuilding fell on the leaseholders after the fire. With fourteen years remaining on the lease, Nicholas Barbon argued in court that by rebuilding according to the new building codes, value was being created that would outlive the term of the lease. The fire court agreed and Barbon’s ground rent was reduced and his lease extended.
Having secured these improved lease terms, Barbon rebuilt his home with enough money left over after mortgaging the property, which yielded £300, to build even more houses. London had by now been afflicted by plague and fire in less than a two-year span; many having fled, property in the city could be acquired very cheaply. With newly acquired property, Barbon deployed the same tactic he had with his family’s house, obtaining some relief through the courts.
Barbon was now firmly set up as a property developer, the largest speculative developer of this era in London. He built new mansions for aristocrats in the West End, after they abandoned their old houses in the denser parts of the city. He also built homes for ordinary people north and west of central London. Barbon even owned his own brick factory.
There was a particular approach to Barbon’s constructions. He built tall and narrow terraced houses, inspired by the urban housing he saw in the Netherlands. The approach allowed him to fit the maximum dwelling space with a given amount of street frontage; helpful as ground rents then depended on the size of a house’s street frontage. Barbon homes were designed to be put up cheaply, built to a standard plan, and so uniform that wood planks were delivered to sites in precut sizes.
The workmanship was not always stellar though and Barbon was known for being confrontational, or perhaps neglectful, towards his creditors, paying his debts only when threatened with debtors’ prison. Barbon was adept at over-mortgaging his properties; in 1681-82, he bought Newport House, a large home in Covent Garden, for £9,500 and mortgaged it for £30,000. Not only his creditors, but his customers and the mason and roofing guilds sued or lodged complaints against him. Nicholas Barbon had enough enemies that in 1684, a riot broke out in front of his home.
Through property development, Nicholas Barbon was increasing the amount of London wealth tied up in real estate; he soon set out to protect that wealth by insurance. Barbon had been keeping statistics on buildings lost to fire since the Great Fire of 1666. With enough data in hand, he established an insurance company called the Fire Office in 1680, behind the Royal Exchange. This was arguably the first fire insurance company. It began offering insurance in 1681, after consultation with prospective customers and marine insurance underwriters. Marine insurance was already an existing product, one of the oldest in insurance.
A customer could buy insurance in an amount equal to ten times the annual rental value of the property insured. The pricing was risk based; insurance for a timber building cost 5% of its annual rent while insurance on brick buildings cost just 2.5%. Barbon had been keeping separate statistics on the loss to fire of timber and brick buildings.
The company offered policies paid annually but also longer-term policies which came with a discount. For example, the cost of a seven year policy was just five times the annual premium; a twenty-one year policy could be had for only ten times the annual premium.
Upon a total loss, the Fire Office paid out the total value of the policy; for a partial loss, the company had the option to repair the damaged property in lieu of a cash payment to the insured. In either case, Barbon established a trust fund to back the policies and build trust in his company. The trust was funded with real estate whose income Barbon believed would cover expected losses, though the capital invested in these properties was also available to pay insurance claims. By his calculations, £40,000 was considered sufficient to get started and insure the first five thousand buildings; with a further £10,000 in capital for each additional five thousand buildings.
We do have some information about how well the venture went in its early days. Between 1681 and 1684, four thousand homes had been insured, £18,000 in premium earned, and £7,000 in claims paid. However, most policies were sold on a longer-term basis and the premium was paid upfront; after considering the losses experienced thus far and the remaining term of the outstanding policies, the results were actually somewhat poor. The total claims paid over the life of these initial policies was likely to exceed premium revenue. In any case, Barbon’s venture attracted attention and rival insurance firms were launched.
Barbon may have offered insurance but as the insurer he was still quite vulnerable to the risk of another great fire. So, Barbon established the Cohortes Vigilum, a fire brigade for London. In 1694, he even patented a system for using tidal power to pump drinking water from the Thames into the city, remove sediment deposits from the river, and power a pumping station for the purpose of firefighting. Barbon even got into banking, setting up the National Land Bank, a saving and loan bank focused on real estate.
The developer turned insurer also wrote early treatises on economics, most notably A Discourse of Trade, published in 1690. Some of his earlier writing, like An Apology for the Builder, was a defense of real estate developers, a business often criticized, no doubt to a large extent because of his own practices. Like his father, Nicholas Barbon served in Parliament, in his case from 1690 until his death in 1698.
Nicholas Barbon possessed an array of skills; his career and business tactics required deploying both legal argument and marketing on top of finance and statistics. That a trained doctor would become one of the most influential property developers in London’s history and also an innovator in insurance is surprising, but that the Great Fire of 1666 made conditions ripe for bold new projects such as Barbon’s is not. Calamities like London’s Great Fire of 1666 create opportunities for rebuilding and encourage the search for a better means of calculating and insuring against risk.
More from the Tontine Coffee-House
Read about how the rebuilding of London was financed after the Great Fire of 1666. Another witness of London’s Great Fire, Daniel Defoe, came to dabble in both insurance and writing. Consider subscribing to this blog’s newsletter here.
1. James, Philip S. “Nicholas Barbon–Founder of Modern Fire Insurance.” The Review of Insurance Studies, vol. 1, no. 2, June 1954, pp. 44–47.
2. Melvin, Jeremy. “Nicholas Barbon – the Man Who Transformed London.” Wren Talk 2020. Wren Talk 2020, 29 Oct. 2020, London, St Bride’s Church.
3. Parsons, Malcolm. “Nicholas Barbon (1637–98): FRCP, Property Developer.” Journal of Medical Biography, vol. 20, no. 2, 2012, pp. 62–64.
4. Zwierlein, Cornel. “Chapter 4: The Epochal Threshold of the Security Regimes 1680–1700.” Prometheus Tamed: Fire, Security and Modernities, 1400 to 1900, Brill, Leiden, 2021.