Guy Carpenter
At the beginning of the 20th Century, cotton production was the most important commercial enterprise in the American South, making the insurability of harvested cotton vital to the economic stability of the region. As a young man in the cotton insurance business, Guy Carpenter discovered that the business was haphazard and reactive. A year of big losses pushed the next year’s premiums too high; a lucky year sent prices down, often exposing insurers and reinsurers to more risk than they had bargained for.
Carpenter had a better idea: rates based on a rolling average of losses over many years. The rolling average identified the signal in the noise of year-to-year fluctuations. The “Carpenter Plan” enabled insurance of all losses over a certain level. For the first time, producers and insurers could anticipate rates and manage costs.
