The History of Insurance

When there is uncertainty, there is a chance of risk. The fear of uncertainty and risk make us feel vulnerable. Often, the uncertainty continues with life, because our path in life is also an unseen one. One of the biggest risks on this uncertain journey of life is financial losses. A financial loss can occur at any time and take you by surprise. 

Fortunately, insurance is there to help you survive the tough times and carve a secure way for a better future. Insurance is your protection from inevitable situations like death and disaster. It also gives capital to the society to invest in productive channels. On our constant search for security and protection, insurance became a shoulder to rely on. 

How insurance started

It wouldn’t be a stretch to say that insurance is as old as human civilization; we’ve just built different methods and approaches to it. The history of insurance outlines the development of reducing risks around cargo shipments, houses, life, health and medical treatment. The industry evolved to mediate risks that scared people in all walks of life. 

Then, it grew on to cover countries and big organizational contracts through its mechanism. Going back to the prehistoric era when people only sold goods to their village. As tribes grew, they started doing business with nearby villages. This formed two types of economies in the world and marked the beginning of formal entities like currency and markets. 

There have been two types of economies in our society:

  • Non-monetary (without financial markets, etc.)
  • Monetary (modern economies with stock exchanges, markets, currency)

The former is an old practice and insurance in those economies was more than monetary aid. It thrived on mutual trust, aid and respect. It often came down to feeding each other or giving others a roof to live. 

Monetary insurance evolved as the needs of the human society grew. These needs shaped up the face of insurance and turned it into a service. 

Chinese and Babylonian traders, a major civilization during that time, used ways of distributing or transferring risk around 2nd millennia BC. The Chinese traders distributed their goods to multiple vessels in the hope of saving some if the rest got damaged. Babylonians, on the other hand, developed a system for insuring their goods. The merchants received a loan to fund their shipments. If the shipment got stolen or lost at sea, the loan automatically got canceled because of damage. 

Beginning of life insurance

The process of insuring lives first came around in Ancient Persia. Achaemenian monarchs officiated the life insurance process by making it a part of the government’s system. The blessed time of Nowruz (beginning of new year) was when heads of tribes gathered and submitted their assets to the monarch. A confidant reviewed the monetary value of each gift and benefit to the tribe as per the value. 

An important purpose of submitting expensive gifts to the monarch was life insurance in times of danger or need. When someone wanted to embark on a journey, marry, or construct a building, the government valued the gifts. If the value exceeded 10,000 Dereks, they got twice the amount for the expenditure.

Inventing the General Average

Almost a thousand years later, general average came into being. The residents of Rhode Island brought this method forward. If the goods of merchants were being shipped together, they paid a divided premium. The money was used to pay any merchant whose goods were damaged in the sea, to avoid total loss. Maritime loss and how to counter it was an important thought on everyone’s mind. Ancient Athenians calculated risks and their costs for shipping products via sea. Loans were cancelled if a ship was lost in the sea. 

Health insurance and separate contracts

The origins of health insurance date back to Greeks and Romans. They created societies that provided support to people who had a recently deceased family member. They also paid funeral costs of the society member. Before insurance officially existed in the 17th century, these societies kept money and trust intact. People came together to donate a sum of money that could be used in case of a health emergency. 

Genoa is the land where separate insurance policies or contracts came into being in the 14th century. These contracts were different from the previously popular method of investment. The trial and error in maritime insurance paved way for standalone insurance contracts in all walks of life. English Colonist Robert Hayman’s Will mentions “100 pounds assured by Arthur Duck on my life”. This shows signs that post renaissance Europe and London were also brimming with activity when it came to life and commodities insurance. 

Insurance companies and their offerings

Edward Lloyd opened a coffee house in the late 1680’s, and it instantly became a hub of activity for merchants and sailors. Parties willing to insure their cargoes and ships often commuted to the place, and those willing to start such ventures followed through. The ‘Lloyd’s of London’ still stands as a credible insurance company in the world. Starting from a specific type of insurance and a market-type model, such companies quickly evolved and covered most aspects of insurance like disease insurance and renter’s insurance to secure more customers.  

Several associates built the ‘Insurance Office’, a company that served people whose houses were damaged in the great fire of London. It became England’s first fire insurance company. 5,000 homes got insured by the Insurance Office. In United States, Benjamin Franklin standardized the process and policy for insurance. The first insurance company of the United States was made in Charles Town which is now known as Charleston. These companies had rules and terms on how a house will be insured and which building have a risk of fire and refused insurance. 

State insurance departments

In the United States, insurance regulations rely on state departments. These departments date back to the 19th Century when New Hampshire appointed a commissioner for the first time. They came up with a comprehensive framework to authorize relationships between multiple financial bodies and put it all under the guardianship of the state. State insurance departments operate individually and coexist with centralized insurance markets. The Federal Insurance Office is part of the US Dept of Treasury that keeps a check on every activity on insurance in the country. It develops a Federal policy on insurance matters, especially international. FIO is also active when negotiating important contracts between US and other countries. 

It took a century for insurance to become modernized and regulated in the United States. As soon as it developed, mature practices came about at the same period and built an extraordinary system that carries itself well till today. In contrast, Asian countries like India also regulated insurance policies around the 19th century when major companies came into existence. In reality, the insurance business in India started as soon as the British colonized the lands. But since these policies only applied to the English, they cannot be called Indian insurance. 

National insurance

The 19th century saw a rise in national insurance policies that covered most aspects of life. Germany made welfare programs in Prussia and Saxony in 1840’s. Chancellors came up with pensions in the old age, accident coverage that built Germany as a welfare state. Britain’s Liberal government passed regulation for workers and insured them against illness and joblessness. However, all workers earning 160 pounds a year had to pay 4 pence every week to get the scheme. As a result of this policy, workers could afford sick leaves and gain free access to several disease treatments.

Conclusion

That’s all about the history of insurance. The key thing to note is that the first insurance policy is related to the Babylonia, where a scripture was found with terms and condition. Then in the dark and middle ages, people came together to pool money and save themselves from potential risks. Moving onto the 1600’s, people voyaged around the world and secured funding from a rich investor for their life and belonging. Development of new insurance types such as fire insurance came into being after fires arising in cities like London. Today, insurance is regulated around the world by state bodies and a federal law.