According to the Organization for Economic Co-operation and Development (OECD), 90% of world trade is done by sea today – not so different from back in the ancient world.
Rome had a population between five-hundred thousand to a million people, while Athens had about three-hundred thousand. Both cities couldn’t provide enough food locally for their people. This made maritime trade crucial.
Historians believe that Rome required four-thousand ship deliveries a year and the ancient Athens received at least six hundred grain shipments a year, excluding other goods. The ancient Greek general Xenophon used to honor the members of the shipping community at a dinner, nothing their service to Athens. Thus, the ancient world took many risks. How did they mitigate it?
They used a financial arrangement called “bottomry.” According to Solomon Huebner “The commercial nations of the ancient world secured the benefits of insurance through the so-called ‘loans on bottomry,’…loans made on the security of the ship and cargo at high rates of interest, and with the understanding that the principal with interest was to be repaid only in the event of the safe arrival of the vessel”.
In other words, it was a mixture of a loan and insurance. Lenders gave money, only to be repaid with interest required if the ship made it to the destination and back. If the ship sank, the lender absorbed the loss. The Greeks charged twenty to thirty percent interest on the sum. The emperor Justinian later locked Roman lenders at twelve percent. Bottomry was a good way for Roman nobility to make money while not appearing to get into commercial activity.
But where’s the fraud?
The borrower does not have to repay the lender if the ship is lost. So, what happens if the ship anchors at another port and states that it is lost?
The ancient Greeks beat us at the Insurance fraud by thousands of years!