The Titanic tested the insurance industry. Ships of its luxury and scale were novel, bringing into question the correct pricing for insurance coverage on such a ship. In the end, it seemed that underwriters underpriced the risk, since when the Titanic’s sister ship Olympic secured coverage for its next transatlantic crossing after Titanic’s sinking, the cost of insurance more than doubled. Separately, the financial fates of the families of those who died on the Titanic with and without their own insurance differed, with the former receiving payments on often large life insurance policies while the latter received relatively little compensation.
Ship
In the early 1900s, transatlantic passenger lines were very profitable businesses largely because of growing international travel and larger immigration, especially into the United States from Europe. So, during this era, ocean liners got bigger. One new German ship, the Kaiser Wilhelm der Grosse, inaugurated a new age in ocean travel. It was the fastest and largest ocean liner of the day. The British firm Cunard Line had two ships built, the Lusitania and the Mauretania, to compete with the German liners like the Kaiser Wilhelm.
In 1907, the Belfast shipbuilder Harland & Wolff convinced a director at the White Star Line that they could build ships even bigger than Cunard’s. It was exactly what the company needed and construction began within six months. A rival to Cunard, White Star Line was owned by J.P. Morgan’s International Mercantile Marine Company. They would introduce three new Harland & Wolff-built ships, the Olympic, the Titanic, and the Gigantic. The famous RMS Titanic was launched in the summer of 1911. This generation of larger and more complex vessels challenged marine insurance underwriting.
Insurance
Willis Faber & Co. was the broker tasked by White Star Line with obtaining insurance on the Titanic and its sister ship Olympic in January 1912. The brokers went to Lloyd’s of London, an insurance marketplace in London then mostly focused on marine insurance, as it had been for over two centuries by then. The vessels were only insured for half their value. Each ship obtained £1 million coverage on losses in excess of £150,000 to the ships’ hull and machinery. The coverage bought at Lloyd’s cost a premium of 15 shillings per hundred pounds covered, or 0.75%. This was an unusually low cost, but perhaps unsurprising for ships said to be unsinkable.
Ships with coverage bought at Lloyd’s were insured by syndicates of underwriters. The Titanic was covered by seventy insurers, largely based in Britain, which together conducted most of the marine insurance underwriting in London. One holdout, British Dominions Marine Insurance, did not participate since its underwriter thought Titanic ‘sat too low in the water’.
Participating insurers were listed on a ‘placement slip’ which, in the case of Titanic, opened to offers on January 9, 1912. Within the first day, over half of the risk being brokered by Willis Faber & Co. was placed with insurers and the balance of the coverage was obtained before the end of three days. Individual underwriters took portions of the £1 million risk ranging from just £200 to £75,000. The ship’s cargo and mail were covered separately, but also at Lloyd’s.
Sinking
During its maiden voyage, Titanic carried 1,317 passengers and 905 crew across the Atlantic. It struck a submerged spur of an iceberg on April 14, 1912 and sank within roughly two and a half hours. Over 1,500 of its 2,222 passengers and crew went down with the ship. Far away in London, Lloyd’s had invested in wireless telegraphy to stay abreast of events at sea. The Lloyd’s wireless radio station called Cape Race, in Halifax, Nova Scotia, was the first on land to hear news of the sinking Titanic. When word made its way to London, anxious underwriters awaited further updates.
Lloyd’s distributed updated news of the Titanic’s loss at 1:27pm London time on April 15. The news reached the City through the wireless station in Nova Scotia. Trading then began in ‘overdue insurance’, reinsurance bought by insurers when a ship they covered was delayed in arriving at its destination. When news of the disaster arrived in London, the cost of reinsurance coverage for the Titanic rose to 60% of the policy size, indicating those who had taken the risk initially were looking to offload their exposure even at very high cost.
Despite the message that the ship had sunk, early reports conflicted, with some suggesting that the Titanic was in fact being towed to Halifax with no loss of life. This caused the cost of reinsurance to fall to under 25% from its earlier level of 60%. Of course, by now the ship had already been at the bottom of the sea for hours. Some newspapers would report that the ship was safe even into April 16, two days after it had sunk. In any case, on April 16, the Titanic was entered into the ‘loss book’ at Lloyd’s which recorded serious losses affecting Lloyd’s underwriters.
Claims
At Lloyd’s, the Titanic’s sinking continues to be one of the most costly single disasters in its history. Still, Lloyd’s insurers paid out White Star Line’s Titanic claims within thirty days, despite the loss making up 20% of the marine insurance market’s premium income that year and about 15% of the total amount paid out on all marine claims in 1912. When the Titanic’s sister ship, the Olympic, commenced a new transatlantic crossing soon after, its premiums had spiked to 2.0% from the Titanic’s 0.75%.
Still not everyone received the benefits of insurance. Family of the dead crew were left with relatively little compensation. Survivors and the families of the dead filed claims of $16 million but the White Star Line managed to settle for just $664,000.
Besides this, American life insurers paid out on large policies held by some of their wealthy insureds. The $50,000 policy of one Philadelphia businessman among the Titanic’s dead was paid to his wife, perhaps the largest individual life insurance payout up to that day. Demand for life insurance was said to have risen after the disaster and it’s no surprise why.
The Titanic’s sinking also saw the first ever claim for a car damaged in a collision with an iceberg when a survivor filed a claim for $5,000 to be made whole on the loss of his 25 horsepower Renault left onboard the ship.
Lesson
Besides testing the marine insurance industry, the story of the Titanic’s insurance coverage illustrates how the Lloyd’s marine insurance market worked at the start of the 20th century. The state of the market and the role of ship operators, brokers, underwriters, and even wireless signal operators are all made clearer. With a history of over two centuries by the time of the Titanic’s sinking, it was clear Lloyd’s should have been fit for purpose but the story of the Titanic confirmed this for the new century.
More from the Tontine Coffee-House
Read about the Smyrna catastrophe, an earlier marine disaster that affected Lloyd’s underwriters but on a far larger scale. Also explore the evolution of marine insurance and mutual insurance alternatives to Lloyd’s. Consider subscribing to this blog’s newsletter here.
Further Reading
1. Lloyd’s Corporation. “Lloyd’s and the Titanic.” About Lloyd’s – History.
2. Miller, Paul. The Titanic: A Tale of Insurance (Insurance Covered Podcast). Reynolds Porter Chamberlain LLP.
3. Swiss Re. “Titanic.” A History of UK Insurance, 2013, pp. 25–25.
4. Zekala, Matthew E. “Liability and Salvage: Titanic Jurisprudence in United States Federal Court.” Lewis & Clark Law Review, vol. 16, no. 3, July 2012, pp. 1075–1125.
