# Insurance Differential (Land vs. Water)

## Definition

The difference in risk premiums charged for insuring goods transported by land versus by water. Smith includes this as a component of transport cost, noting that the cost of water-carriage must account for "the value of the superior risk, or the difference of the insurance between land and water-carriage." Despite this risk premium, water-carriage remains far cheaper overall due to its vastly greater efficiency in labour and capital.

## Source Chapter

Book 1, Chapter 3: "That the Division of Labour is Limited by the Extent of the Market"

## Context

This appears within Smith's detailed cost comparison of moving two hundred tons of goods between London and Edinburgh by land versus by water. After cataloguing the costs of men, horses, and waggons for land transport, he notes that water transport costs include maintenance of a small crew, wear on the ship, and this insurance differential.

## Economic Domain

Exchange

## Smith's Original Wording

> "...together with the value of the superior risk, or the difference of the insurance between land and water-carriage."

## Modern Interpretation

This is an early recognition that transport costs include not just direct logistics expenses but also risk-adjusted costs — what modern logistics and finance would call the risk premium or cost of insurance in supply chain management.
