Why do insurance policies expire at 4pm?
I recieved the following interesting question:
Dear Prof. Manning,
I am a young professional working in the insurance industry and have a particularly keen interest in insurance contracts and their history.
My question relates to the reasoning behind insurance contracts commencing and expiring at 4.00pm.
I have attempted to research the matter myself to find out why this particular time was selected but I have not had any success. I have also asked my experienced colleagues who haven’t been able to find a definitive answer. I wonder if you can shed any light on this matter.
I look forward to hearing your thoughts.
Kind regards
Luisa [Surname and email provided]
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This is one of the first questions I am not 100% sure as I have not found any reference to this in any of the huge amounts of books in any book or training course. I have, like many of you I am sure have questioned this and when I asked at different times in my career I received two different but plausible answers.
Before I address them I reminded Luisa that 4pm is not universal with some Lloyd’s syndicates ending at midnight.
The first and most popular answer is that the 4pm deadline was designed to allow an insured or broker, one hour of business hours to place a risk that has otherwise expired rather than find that they cannot get cover in place till the next morning.
Another possible simple answer is around the time that insurance offices closed their doors. When I was a child, banks used to close at 3:30pm in Australia but the staff stayed back to 5pm to do all the reconciliations.
Back in the day it is possible that in the UK the insurers closed their doors at 4pm and it is for this simple historic reason that the industry uses that time.
So we have two possible answers without knowing which if either is correct. I therefore throw the question open to the readers. If anyone has any other possible answers could you please let me know via the post a comment section along with where you heard or read it. Thanks.
Dear All
Another theory to ponder as told to me by a re-insurer many years ago
Insurance originated in London and it was devised to protect goods being transported by sea, ships were insured on the day they set sail and the policy was only effected after 4:00pm which is the high tide mark of the Thames River occurs.
The laden ships cold not leave prior to the high tide mark..
Thanks
Not sure this one is true Peter as the time of the tide changes every day be 25 minutes plus you have two high and 2 low tides in every 25 hours.
The other thing is that marine insurance really started long before England, it goes way back with the oldest known marine policy issued in the 1200’s in Italy, then as the maritime power moved to Spain we had the Barcelona’s ordinances of 1435. It was only when England started to become a great maritime nation under King Henry 8 and Queen Elizabeth did the centre of influence move to London.
Al
I just read the question and possible reasons for the 4:00 pm termination of insurance policies.
As you correctly state the shift to Britain as a maritime power occurred around the reign of Henry VIII.
When I was attending insurance lectures in the mid 1960’s we were told that the 4:00pm termination came about with the change of watch on a ship at sea. Possibly in addition to the meeting of masters and owners at LLoyd’s Coffee House prior to the close of the days business.
Cheers
David.
Thank you David, I had not heard of these possibilities. Thank you for sharing.
Originally Fire Insurance was the fee paid to the Fire Office and the office closed at 4pm, so the fire renewals were timed to end at the closure of the fire office. This was the fee paid to ensure the fire brigade showed up to put out your fire