Did you know...?

The evolution of financial services and the history behind the products and functionality we use every day is not always what you might expect.

Alison Gay, senior regulatory consultant at The Lang Cat, looks at how some of the ways our industry has evolved can bring up some surprising facts. 

The charity driver behind Consumer Duty

The development of Consumer Duty was long and complex, but an organisation that gained significant traction with MPs was not the regulator or from the industry, but Macmillan Cancer Support.

The existing Treating Customers Fairly rules had long been criticised as too weak to provide real protection for consumers or power to the regulator when firms got things wrong. Macmillan published research documenting the financial difficulties faced by people with cancer, showing that even firms meeting the letter of the regulations still caused distress and harm. As one respondent put it, "the stress of the financial impact of cancer is worse than cancer itself."

Macmillan campaigned energetically for banks to hold a duty of care towards customers, and had a significant win when the Treasury Committee's report into access to financial services supported their viewpoint. They weren’t the only ones arguing for this, but their evidence struck a chord with MPs.

After much consultation and industry pushback over potential conflicts of interest, duty of care became Consumer Duty, applying to all sectors, requiring firms to go further than being ‘legal but not right’ and act to deliver good outcomes for retail customers.

How Edmond Halley influenced the pricing of life insurance 

Edmund Halley, Britain’s second Astronomer Royal, is best known for identifying that a bright light that had been seen in the sky many times over the centuries was in fact a returning comet, the one which was eventually named after him.

Halley was a prolific mathematician with interests in many areas, including inventing a diving bell and measuring the salinity of oceans, but it was a paper based on birth and death tables in the city of Breslau (now Wroclaw), published in 1693, that had most significance for financial services.

His paper, ‘An Estimate of the Degrees of Mortality of Mankind’, was the first life table based on sound demographic data, allowing much more accurate pricing of annuities, basing them on the age of the purchaser. Arguably, it became one of the foundations of actuarial science.

The population shift that created a culture of protection

During the industrial revolution there was a significant shift in the location of the UK population, with workers moving from the countryside to the newly industrialised towns. This created a need to adapt a product previously targeted at the wealthier classes for people on lower incomes.

Often the workers in the new Victorian factories were not only housed in poor quality housing but lodged in areas where pollution was highest. In many cases this was the East of a city, given that westerly winds tended to blow the chimney smoke in that direction, making property cheaper. Combined with shocking levels of industrial accidents, poor sanitation and little or no medical care for people who couldn’t afford it, the family breadwinner would often die young leading to destitution for the family.

Step forward the insurance companies, who devised ‘industrial branch’ and ‘penny policies’ collected door to door. These were aimed at people who could only afford to pay small sums for insurance and wouldn’t have the time or the inclination to visit an insurance office. The concept was so successful that by the 1960s the Prudential alone was estimated to have six million households as customers.

The fire that started the property insurance industry

Samuel Pepys may have saved his parmesan cheese from the Great Fire of London, but more than 13,000 houses, the Royal Exchange and St Paul’s Cathedral were destroyed.

Nicolas Barbon, a medical doctor with a keen eye for a business opportunity, set up a building company to take advantage of the need to reconstruct the City. Having witnessed the devastation caused by the fire he sought to protect his own property developments and, in 1667, established the Insurance Office for Houses behind the former Royal Exchange. Initially, this covered only his own developments, but in 1680, along with three associates, he transformed it into "The Fire Office" — the first joint-stock fire insurance company, covering 5,000 London households.

The Fire Office pioneered risk-based pricing, charging different premiums for brick versus timber houses to reflect their differing fire risks. Though it began as a personal underwriting venture, its 1680 formalization marked it as the world's first fire insurance company, laying groundwork for modern insurance practices.

It’s not always the obvious stories that bring us to where we are today in financial services. Sometimes it’s cheese, or illness, or the maths behind astronomy.

It pays to keep an open mind.