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The Rough Notes Company Inc.



June 25
09:28 2021

Public Policy Analysis & Opinion

By Kevin P. Hennosy


Reverend Richard Price constructed the groundwork for modern insurance and the U.S. Revolution

This month, as we gather—in small groups—to celebrate American independence from Great Britain (or consume adult beverages), only the most nerdy celebrant will remember the name of the Reverend Richard Price.

I am that nerd!

Richard Price was an 18th Century, Welsh-born, Unitarian minister who furthered the cause of independence for Britain’s North American Colonies—and, yes, the business of insurance. No, he never served as president of the National Association of Insurance Commissioners (NAIC), but Price still left his mark on insurance and self-government.

Is it not better to have some background in the history of insurance before forming opinions on contemporary issues in insurance public policy?

This is a slightly different topic for this column, but not as different as one might initially think. History provides the platform to understand insurance public policy. Without a knowledge of history, we remain at the mercy of all manner of special interests to tell us what to think.

Who wants to live like that? Is it not better to have some background in the history of insurance before forming opinions on contemporary issues in insurance public policy?


For most of human history, anxiety or fear served as a universal rule against which to measure risk. Crossing a body of water, climbing over a ridge, moving through a forest or desert, or contacting unfamiliar people resulted in differing levels of fear. Our ancestors accepted that feeling as a measure of risk.

The imprecision of risk measurement—our ancient ancestors tended to live in a Sense of Pure Risk, which recognized 1) maintenance of current conditions, or 2) catastrophic loss.

Under a Sense of Pure Risk, change meant loss and very few people in pre-modern times could suffer loss and survive. From the earliest times, humankind developed increasingly complex social hierarchies designed to preserve existing conditions. Social order, traditions, and ritual sought to replicate yesterday, because our ancestors had indisputable proof that they survived yesterday.

The Sense of Pure Risk facilitated obedience to traditional societies—chiefdoms, kingdoms, and empires. Traditional societies established static social structures designed to conserve resources in the hands of a select class. Furthermore, traditional peoples sought to avoid peril by rejecting strangers—except when following ritualistic gifting processes, which evolved into imperial trade.

Of course, change occurred through time, but only very slowly. Trade necessitated the creation of money, which led to proto-insurance mechanisms, such as, maritime societies, “bottomry” arrangements, and other mechanisms that spread the risk of loss without scientifically measuring that risk. These small changes accumulated into very-large traditional societies, such as France’s Ancien  Régime.

And then, everything began to change at a very rapid pace. Anyone born in the year 1500 would pretty much understand day-to-day life in the year 1000. But that same person would not have a clue how to act in today’s world.


As Peter L. Bernstein observed in his 1996 book Against the Gods: The Remarkable Story of Risk, humankind’s ability to measure and manage risk in a rational way created the Modern World:

The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature. Until human beings discovered a way across that boundary, the future was a mirror of the past or the murky domain of oracles and soothsayers who held a monopoly over knowledge of anticipated events.

Rev. Richard Price—remember that this column is about the Rev. Price—would conduct some of the mathematical and philosophical work that wrested the world away from the oracles, soothsayers, and emperors.

Before we discuss Price’s importance, we should know a few of the people on whose shoulders he stood. In the late 17th Century, a series of mathematicians conducted work that resulted in Probability Theory and Statistics. After all, this mathematical work not only serves as the foundation of the business of insurance, but it also changed the world.

What’s the risk?

First among these math geniuses was Blaise Pascal (1623-1662), who was a French child prodigy, and possible neurotic, who would live only 39 years.

Pascal’s father was a judge who possessed an interest in mathematics. He also followed a spur in French Catholicism known as Jansenism, which focused upon cheery tenets, such as original sin, human depravity, the necessity of divine grace and predestination. The elder Pascal passed both interests to his son.

Beginning at the age of 16, Blaise Pascal began publishing serious works on the mathematical underpinnings of cones, fluids, vacuums and other light topics. Fear not dear reader, we will leave these studies to other magazines to cover.

Pascal’s mathematical work on whether, or how, an individual could take actions to impact future events in a positive way is another matter indeed.

In 1654, Pascal began corresponding with Pierre de Fermat, a French lawyer who held more than a passing interest in gambling. Fermat wanted to provide guidance in a situation where two gamblers wanted to bring a quick end to a game, while still preserving a fair distribution of winnings consistent with what the distribution would be if they completed the entire game. Pascal developed mathematical tools based on the conditions at the early end of the game that projected the probable outcome without playing the entire contest.

These mathematical tools formed the basis of Probability Theory.

The English intellect Sir Edmond Halley (1656-1742), better known for identifying and predicting the orbital travel of a comet that now carries his name, used Pascal’s probability tools for a new purpose. Halley applied probability theory to data drawn from the birth and death records of the city of Breslau. From this work he constructed a table that showed the number of people surviving to any age from a cohort born the same year. With that “life table,” Halley projected a pricing system for annuities based on the annuitant’s age.

Building upon Pascal and Halley, Reverend Thomas Bayes (1702-1761) developed mathematical tools to project the probability of a greater number of events beyond mortality. Bayes based his projections on multiple elemental factors that relate to the future event. Expanding the number of factors facilitated a more customized analysis of probability of a particular event. In addition, Bayes’ approach reduced the impact of any one botched data element on the confidence that the researcher should place any final projection through multiple samples considered together through time.

In short, Bayes recognized that things do go wrong in data sets and constructed a control for the probability of such a result.

Bayes would be better known outside of the world of statistics if the actuarial tables had not caught up with him. Rev. Bayes was still working on his conditional probability tools when he died, and his family gave his work papers to Rev. Richard Price (1723-1791).

The reader will remember Rev. Richard Price because this column is about Rev. Richard Price.

Wage earners

Unlike with most 18th Century religious intellectuals in Great Britain, the ministry of Rev. Richard Price focused on wage earners rather than aristocratic congregants. Price saw how debilitating events tied to death, injury, old-age, and illness could punish entire families.

He understood that annuities served to lessen the crushing impact of these events. He also knew that annuities were often misused to enforce obedience from poor people to the wealthy through history. Furthermore, more recent sources for annuities faced problems pricing the product, which resulted in institutional financial failures triggered by too low of rates or too much investment speculation.

In 1761, Thomas Bayes’ survivors named Price the executor of the former’s estate and papers; the latter took up the topic of conditional probability. Price saw that Bayes’ work received publication and penned a philosophical introduction to the work. A minority of scholars suggest that Price did so much work to extend Bayes’ ideas that they credit Price with the final “theorem.”

Price’s philosophical introduction proved so noteworthy that Bayes’ Theorem lived on in mathematics, and The Royal Society of London for Improving Natural Knowledge extended a fellowship to Price.

In addition to philosophy and academics, The Equitable Life Assurance Society (The Old Equitable) retained the Rev. Price to reconstruct the mutual company’s pricing and finances. Augmenting Bayes’ Theorem with principles established for the company by mathematician James Dodson, the insurer moved away from speculative investments in the 1770s. (After Price’s death, his brother admitted that the pricing system still charged too much based on risk calculations—but the company did not complain.)

As a non-conforming minister—the Rev. Price rejected the Church of England, original sin, and eternal damnation. Through business contacts, he became a person to see in the London of the 1760s. He would meet with many dignitaries, including American luminaries such as Benjamin Franklin, Thomas Jefferson, John Adams, and John Quincy Adams.

When the North American Colonies declared their independence from Great Britain, Price backed them. By this time, both his religious and political philosophy rejected the old hierarchical order. He stressed the individual conscience and the societal use of insurance mechanisms to foster confidence in the face of change.

The Rev. Price delivered sermons and published pro-American pamphlets, which encouraged Americans and raised doubts about the war in the minds of British intellectuals. Price’s contribution to the struggle for independence from Great Britain was so important that, in 1781, Yale University awarded him an honorary Doctor of Laws. Only one other person received that honor from Yale in 1781: George Washington.

With conscience and confidence, the Sense of Pure Risk no longer had hold on modern society, and the Sense of Speculative Risk seemed a survivable bet regarding 1) the status quo, 2) the probability of loss, and 3) the probability of gain. As confidence in the ability to face change grew, people became comfortable with rejecting the ancient hierarchies and welcoming self-government.

So, every July we have an excuse to consume adult beverages and grill protein products.

Original concepts

This column focuses on insurance public policy, which touches upon business, politics, the law, and the Constitution. Price’s work still provides the foundation for actuarial science, public opinion polling, numerous regulatory activities, public health monitoring, and distribution.

After the Second World War, many statisticians moved away from the Bayes-Price Theorem and relied upon single pool sampling without updating data through time. Mid-century statisticians trusted the validity of their data collection programs, so they rejected the need for multiple updates. The folly of this change became noticeable when Nate Silver began applying Bayes-Price Theorem to political polling results at the end of the George W. Bush Administration. Silver’s projections proved highly predictive over several national election cycles.

Yes, this month’s column is different than most; however, these original concepts form the foundation of self-government and insurance. Why not visit them from time to time?

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nation-wide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.

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