History of Insurance; 400 AD - Today
What Insurance Is
Insurance as you know it is a way of protecting
yourself against life-threatening risks like
car accidents, fires or burglary.
Some kinds of insurance pay you money if you
become too sick to work or even pay your family
money should you die.
Insurance can also be seen as a contract where
you obtain financial protection or payback
from losses from an insurance company.
How Insurance Started
Ever since the dawn of time the concept of
insurance, that is, the awareness of risk
has been in existence.
It could be seen in the actions of the people
of the old when for example they moved merchandise
in several separate campers in order to prevent
losing the entire load to plundering tribes.
However, the very first insurance policy was
carved in code by King Hammurabi on a Babylonian
obelisk monument.
It was named the Hammurabi Code and was one
of the first types of written laws despite
its extreme rules.
One of the rules in the code could be defined
as an insurance policy in that a person owing
would be exempt from paying back his loans
if a singular disaster befell him that made
it impossible for him to pay the loan.
The disaster included events like disability,
death, fires, flood and so on.
During the late 400 AD, there was a guild
system in place where craftsmen trained.
They would begin as apprentices and spend
their childhoods working for masters who barely
paid them, but as they matured and became
more experienced, they would also become masters
in their own right and would be required to
pay dues to the guild in order to train their
own apprentices.
At the time the richer guilds had bigger repositories
from which they drew funds for insurance.
In cases where a master's place of work burned
down, for example, the guild would chip in
and help rebuild the workplace using money
from the repository.
Even in cases where a master was robbed or
rendered unable to work or killed, the guild
would either support him financially until
he was able to get his business moving again
or support him and his family.
This security practice inspired people to
abandon farming and become more involved in
a trade which resulted in an increase in the
number of goods available for trade as well
as the extent of the goods and services that
were accessible.
Basically the form of insurance that is popular
today as a group coverage began from the days
of the guilds.
Insurance in Medieval Times
During the medieval times, a type of insurance
known as Sea loans became very common.
The sea loans involved investors providing
credit and sea insurance by lending money
to traveling merchants whereby the merchant
would pay back upon the safe arrival of his
ship.
At the time the rates on the interest were
very high to compensate for the higher risks
involved.
This practice went on for many years until
1236 when Pope Gregory IX denounced it because
of the extremely high-interest rates.
This led to the introduction of the commenda
contracts.
With the commenda contracts, capitalists would
provide funds to business owners to carry
out trade through partnerships whereby the
profit would be shared but the sea and commercial
risk would belong to the capitalist.
In the 1400s, cambium contracts were introduced
by Italian merchants whereby the lenders would
sell bills of exchange to the borrowers.
However, the bills did not cover the risk
of sea trade.
In order to cover the sea trade risk, the
merchants invented insurance loans where the
borrower would remain on land while the goods
being insured would be sent alone and the
loan would be paid upon the safe arrival of
the goods whether or not the ship arrived
in good condition.
This type of insurance became the foundation
for what is now known as marine insurance.
As years passed the payments on the marine
insurance began to vary depending on the risk
involved.
In the same vein in Genoa, separate insurance
contracts that were not packed together with
loans, as well as those that were backed by
pledges of estates on land, were invented.
As developments in insurance proceeded, in
1488, a man called Pedro de Santarém wrote
a book on insurance which was published in
1552.
It was titled the Legal Treatise on Insurance
and Merchants’ Bets.
Insurance and Sea Trade
Back in the 1600s when the colonies were being
established and exotic goods were being shipped
back and forth between the New and Old World,
a coffeehouse which would later be named Lloyd’s
of London and which was owned by a man called
Edward Lloyd, was the initial meeting place
for all those that sought insurance like merchants,
ship owners and even individuals.
It was in this coffeehouse that the practice
through which a person or company would take
on financial risk for a price began.
It was also at this time that a simple system
of insurance was put in place.
The way it worked was that merchants and institutions
would request for funds from venture capitalists
who would help them to find people that were
interested in becoming colonists, these types
of people were very common in the wretched
parts of London, and who were willing to buy
provisions for the journey.
On their end, the merchants or institution
would give the venture capitalists part of
the returns on the goods being produced in
the colonies or on the goods they find in
the Americas especially because at the time
rumors abounded that gold deposits and other
precious metals were rampant in America.
Eventually, the rumors were found to be untrue
and the venture capitalist opted for a share
of the new crop at the time, tobacco.
And once the journey was confirmed, the venture
capitalists and their clients, the merchants
or ship owners, would head over to Lloyd's
to give a copy of the ship's cargo to the
investors and insurance agents assembled there.
Any insurance agent, or underwriter as they
were called back then, that was interested
in taking on the risk for an agreed amount
would then sign the copy under the value indicating
the share of the goods that they were insuring.
As such various underwriters could spread
the risk of a single voyage among themselves.
As at 1654, the Frenchman that invented the
first calculator, Blaise Pascal, and his fellow
countryman, Pierre de Fermat found a way to
determine odds and in turn determine the levels
of risk.
This formulation became known as Pascal's
triangle and specified underwriting as a practice,
making insurance cheaper and it eventually
resulted in the first actuary tables that
are still used to calculate insurance rates
today.
Insurance in Modern Times
By the late 1600s, popularly known as the
Enlightenment era in Europe, insurance had
become more sophisticated and had developed
into various specialized areas.
Some types, however, did not develop until
the early 1700s in London.
It was said that English colonist Robert Hayman
included in his will that two insurance policies,
each worth £100 were taken out with Arthur
Duck, the diocesan Chancellor of London.
One of the policies was related to the safe
arrival of Hayman's ship in Guyana while the
other was taken as "one hundred pounds assured
by the said Doctor Arthur Duck on my life."
This was one of the known examples of the
use of life insurance policies in London.
By the 1800s, insurance had evolved in response
to new types of risk.
In 1864, the Travelers Insurance Company sold
its first accident policy and in 1889, the
first car insurance policy.
Up until the present day, new types of insurance
were being continuously developed to keep
up with the risks associated with modern lifestyles.
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