Ancient Greek insurance scams

The Greeks used to practise bottomry. No, it's not what you think it is. Bottomry is a form of maritime insurance.

It works like this: the captain of a boat borrows money from a lender. Then he sets sail. If the boat makes it to the next port, he has to pay back the lender what he borrowed plus interest. If the boat sinks on the way, the lender loses his money.

This is, in effect, insurance, but it probably began when merchant captains had an urgent need to repair their ships in foreign ports.

A captain might need money to repair his damaged ship, but have nothing on board to pay for repairs. As anyone who's ever run a small business knows, cash flow is the killer. So the captain borrows from a moneylender, using the only thing he has available as collateral: the ship itself. He repairs the boat, takes a cargo on board, and sails to the next port where he sells the cargo at a profit. Then he repays the lender, plus interest.

The Greeks realized that the risk-offset aspect of this arrangement was very valuable, regardless of whether the ship needed repairs. And so, insurance was born.

The practise became widespread. Merchants could cover the risk of losing their ship and cargo, while lenders (insurers) could make a profit of...wait for it...30%! How's that for a high premium? But we know the figure was 30% because that's what it is in surviving documents. Merchant vessels ran high risks in those days and 30% would have been a fair price considering how many boats foundered.

We know a lot about bottomry and ancient insurance scams via a legal eagle called Demosthenes. Demosthenes is famous for getting into serious doo-doo with King Philip of Macedon and his son Alexander, which he did by persuading the Athenians to rise up and fight against one of the world's greatest military geniuses. This resulted in a negative experience for the Athenians - they're lucky Alexander didn't raze Athens to the ground - and Demosthenes wisely suicided before he could be captured.

However before Demosthenes began his unfortunate career in politics he prosecuted countless cases of insurance disputes, four of which survive today in court speeches.

The Greeks, being the strong individualists that they were, invented the insurance scam approximately 10 seconds after they invented insurance. It was perfectly normal for the boat owner to claim the boat had sunk, when in fact it was hidden in some foreign port. This was so common that standard contracts required the owners to pay the insurer twice the premium rate if the boat was concealed and subsequently discovered still floating. If you're wondering why the owners weren't jailed for fraud...that's rather difficult if there's no police force to make an arrest, nor a jail to put offenders in. If you were an insurer who'd been diddled, your only recourse was a civil court case.

One of the most spectacular cases of fraud came about when two men, Hegestratos and Xenothemis, decided to pull a bottomry scam. They contracted with an insurer in Syracuse - a Greek city in what is now Sicily - for their shipload of corn, which they said would sail to Athens. In fact the ship left Syracuse with an empty hold. The men planned to sink their own boat three days out of port, make it back to shore on a raft, and since the boat had sunk, pocket the value of their boat (no doubt over-stated) plus the value of all that non-existent but very expensive corn.

Things went pear shaped when, three days later, the passengers and crew wondered what that banging was down in the hold. They discovered Hegestratos trying, and failing, to punch a hole in the boat. The passengers and crew were just a little bit upset that the owners were willing to drown everyone for mere profit. Hegestratos jumped overboard to escape their wrath and promptly drowned. Xenothemis carried on in the perfectly sound boat to Athens. History does not record what happened to him then, but we can be quite sure it was unpleasant.