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The greatest advantage of capitalism is its ability to adapt to the changing economic environment. Given time and a free run, Adam Smith's invisible hand invariably nudges collective action in the direction that causes the most favourable outcome for the greatest number of people.

Beazley's recent move to tap the retail markets is but the latest innovation in this regard. The motives are simple and logical. Historically, specialty (re)insurers' preferred method of debt-related capital has almost always been through corporate debt and letter of credit facilities. The problem with the latter is that they are short-term and have to be renewed every couple of years. Their popularity among banks waxes and wanes and their cost as a source of capital can be difficult to predict.

This problem inspired some, including Beazley, to pursue longer-term debt-based options. In the case of Beazley back in pre-crisis, debt-friendly 2006 it managed to get a 20-year £150mn bond away.

With this, surely a major part of Beazley's capital problem was solved for half a generation and at superb rates? As it turns out, no - things changed.

The ratings agencies' view on this form of capital performed a screeching handbrake turn. The instruments rapidly moved from being a cheap form of long-term capital to an expensive one.

Hence the new move into the retail funding space, which now compares favourably on cost.
In a low-to-no-yield environment many retail investors will welcome the opportunity to be paid a reasonable premium for the risk they take in lending their money to others.

The change reflects a wider trend in the post-crisis financial world.

As banks have attempted to shrink their bloated balance sheets by trimming their loan books, so human ingenuity has once again moved to fill the gap.

The latest of these are the "crowdfunding" and "crowdsourcing" phenomena that we have seen reported so widely of late.

These supposedly new and exciting systems see a task or problem outsourced to an undefined public rather than a single corporate entity, and can be anything from charitable initiatives to angel finance for new companies or aspiring musicians.

But is it really as new as we think? After all, the concept of human beings clubbing together to solve problems has been around for as long as civilisation itself.

What was the original Lloyd's other than a collective of individuals networking to solve the high finance problems of the day?

The "crowdfunding" and "crowdsourcing" concepts tap into a highly optimistic theory known as the wisdom of crowds. The idea is that harnessing the power of large numbers of people through the internet can collect, aggregate and analyse large amounts of information to gain a more complete and accurate picture of a subject.

We would have to be sceptical on any claim that many heads are always better than one.
For example, this theory suggests that the Lloyd's of the late 1980s should have been a golden age that benefitted from the collective wisdom of record numbers of Names and their members' agents, communally steering a wise path away from self-destructive competition and toxic reserving.

At his juncture one should remember that one of the best books written about capitalism is Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay.
The clue is in the title.

Crowds can be whipped up into hysterical bouts of over-optimism one minute, only to be plunged into the depths of despair the next. At neither point are they behaving rationally, let alone displaying innate wisdom.

Crowds may be useful in some spheres, but you certainly wouldn't catch Warren Buffett posting questions about what to invest in next on a web forum.

No, the trend is far more simple to follow: while banks are out of the game, retail investors will come into favour, then everything will doubtless change again.

In finance, there is no such thing as a revolution, only a consistent process of change. But it always pays to be ahead of the curve. Beazley, with its £250mn retail bond offering that is currently being road-showed, would appear to be doing just that...