Bottomry, also known as bummaree,[a]Other names include bottomaryne and bottomarie. and its associated respondentia, is an early form of maritime insurance. Now defunct, it is more comparable to a mortgage than conventional insurance, as it involves no transfer of risk. Instead, to fund the cost of a voyage, either the ship itself in the case of bottomry, or its cargo in the case of respondentia, is offered as security for a loan. The amount borrowed, plus a premium, is repaid on the ship’s safe arrival at its destination, but if the vessel is lost at sea the investment is forfeit. In modern parlance it could be considered to be akin to a futures contract, in which the “insurer” is buying an option on the value of the venture should it be concluded successfully.
The Babylonian Code of Hammurabi, promulgated in about 1950 BCE, formalised the ideas of bottomry and respondentia, establishing a base for the modern idea of insurance. The concept spread throughout the ancient world, and by 750 BCE almost all sea voyages were covered by bottomry contracts, with premiums ranging from 10 to 25 per cent depending on the perceived risk.
By the Middle Ages, Christians and Muslims alike were becoming concerned that bottomry, as a conditional loan on which a premium was charged, was perilously close the the forbidden usury, by appearing to charge interest on a loan rather than taking a share of anticipated profit. The dilemma was resolved by considering that every commercial contract involves an exchange – typically a commodity for a sum of money – giving birth to the modern idea of insurance, in which the commodity being traded is risk; the former borrower is effectively selling a risk to the insurer, at a price determined by the insurer’s perceived likelihood of the eventuality insured against actually occurring. The first such insurance policy, as it would be recognised today, is contained in a Genoese document of 1343.