19. The 1906 San Francisco earthquake and fire made Lloyd’s reputation in the United States
The earthquake which rocked San Francisco in April, 1906, was one of the most devastating events in American history, and one which changed the insurance industry globally. Following the earthquake fires broke out across the largely wooden city, raging out of control for days, and aftershocks continued to add to the destruction. Over three thousand people died in the earthquakes and ensuing fires, including the city’s fire chief. Financial losses, measured in 21st century dollars, were in excess of $10 billion. Many insurers lacked the wherewithal to pay all of the claims of their policy holders. Some paid for fire damage, but not that attributed to the earthquake. Others did the opposite. Some didn’t pay at all.
Some buildings which the earthquake left relatively undamaged were dynamited by firefighters hoping to create firebreaks. Others were allowed to simply burn themselves out. Many if not most insurers hesitated to pay claims until the reasons behind them were sorted out, and more than 20% of all claims were denied. Lloyd’s leading underwriter, a man named Cuthbert Heath, cabled from London, “Pay all of our policy holders in full irrespective of the terms of their policies”. Lloyd’s paid more than $1 billion to policy holders (in today’s dollars) within weeks of the devastating event, and cemented their reputation in the United States. It took more than four decades for the company to recoup its losses.