From November 2016 through October 2017, Financial Times writer Tim Harford presented an economic history documentary radio and podcast series called 50 Things That Made the Modern Economy. This same information is available in book under the title “Fifty Inventions That Shaped the Modern Economy“. While I recommend listening to the entire series of podcasts (as well as reading the book), I would like to call your attention to Mr. Harford’s episode on a particularly important risk management topic; i.e., the topic of insurance, which I link below. This 9-minute long podcast lays out the history of the development of the various institutions which exist today for the sharing and trading of risk, including markets for financial derivatives as well as for insurance.
“Legally and culturally, there’s a clear distinction between gambling and insurance. Economically, the difference is not so easy to see. Both the gambler and the insurer agree that money will change hands depending on what transpires in some unknowable future. Today the biggest insurance market of all – financial derivatives – blurs the line between insuring and gambling more than ever. Tim Harford tells the story of insurance; an idea as old as gambling but one which is fundamental to the way the modern economy works.”
Postscript: The scene above depicts the early days of Lloyd’s Coffee House in London, England. According to Wikipedia, Lloyd’s Coffee House was opened by Edward Lloyd in 1686 and quickly became “… a popular place for sailors, merchants and shipowners, and Lloyd catered to them with reliable shipping news. The shipping industry community frequented the place to discuss maritime insurance, shipbroking and foreign trade. The dealing that took place led to the establishment of the insurance market Lloyd’s of London…”