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Insurance History

Insurance has existed in some form or other since the very beginning, and there is no time in history when one can say that Insurance did not exist. Even in societies where there was no form of money or other financial instruments, Insurance existed in the form of an understanding for helping each other out whenever some kind of disaster struck. A burnt house was rebuilt by the neighbouring people as a whole, and people felt safe in the idea that there was always someone nearby to help in difficult circumstances, and that they too could be called upon to help if disaster struck someone else.


If we look to history to find specific methods employed to distribute risk and cover losses, we can find it in the 3rd millennia among the traders of China and Babylonia. The chinese traders when travelling on dangerous river waters would spread their goods among a number of ships, so that all their wares were not lost if a single ship was destroyed. In Babylonia, merchants taking a loan for a shipment, would pay a fee to the person giving the loan, for an assurance that he would not ask for the loan amount, if the shipment was lost due to a robbery.

The earliest record of a governing body insuring its people, can be found in Iran. There was a custom of presenting the king with gifts on the new year day. When the value of these gifts was more than a certain amount, it was recorded, along with the name of the person who presented it. This process of recording was done so that whenever the giver of the gift was in need of help, the state would come forward and help him monetarily.

A group form of insurance can be seen among the people of Rhodes, when traders shipped their goods collectively. Each trader would pay an amount proportionate to the value of goods he was shipping, as form of premium. This collected amount would be used in reimbursing the trader whose goods were lost due to sinking or storms.

The earliest form of insurance for life and health can be seen in 600 AD, in the Roman and Greek empires. Guilds were formed to take care of families whose earning member had died. The guild would take care of the families and also pay expenses for the funeral. In England a similar form of organisation was called Friendly Societies, where members contributed money to a common pool, which was used to compensate loss in emergencies and disasters.

The first Insurance contract can be traced to the 14th century in Genoa, which was specifically treated as such and not as an investment. After the Renaissance in Europe, Insurance developed further, and the era saw the emergence of different types of Insurance.

The last years of the seventeenth century saw England rise as a major maritime power, and there was a demand among the business class for a proper marine insurance. This demand brought about a spurt in the underwriting business who were willing to insure ships and their cargoes.

Slowly different types of Insurances were seen to start. In the year 1694, Hugh Chamberlen started with the concept of health insurance. The first type was a kind of accident insurance which compensated the victim in case of a disability resulting from an accident.

The need for house insurance against fire, was felt after the major disaster which came to be known as the Great Fire of London in 1666. Thousands of houses were destroyed in this tragedy, which made Nicholas Barbon start the first insurance company, called The Fire Office, which insured houses made of brick. In the United States the first insurance company to give fire insurance was started in 1732, in south Carolina. In 1752 Benjamin Franklin popularized the concept of fire insurance, so that it became a standard practise. His company pioneered activity in the field of fire prevention, and also refused insurance to certain structures, which were at a high risk of catching fire.

The initial life insurance can be seen in the United States before the Civil War, when certain companies offered policies on the life of slaves, to the people who owned them.

After that there was a steady growth of the insurance sector and culminated with the United States government making it mandatory with the passing of the Social Security Act. This program gained popularity and people saw it as a way of achieving security financially. Car insurance also became mandatory for anybody driving, to cover collateral damage in case of automobile accidents.

Tags: collateral, government, Insurance, loan, money, risk

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