The industrial revolution and the expansion of the Empire necessitated the development of insurance solutions. The Phoenix, the first really modern and worldwide insurance firm, was created in London towards the end of the 18th century by an association of sugar mill proprietors. Let us look at the history of insurance in the world.
Insurance in some form predates human culture. Bottomry contracts were known to Babylonian traders as early as 4000–3000 BCE. Bottomry was also performed by the Hindus about 600 BCE and was widely understood as early as the fourth century BCE in ancient Greece.
Under a bottomry contract, merchants were given loans with the proviso that the loan would not have to be returned if the cargo was lost at sea. The loan’s interest paid off the insurance risk. Ancient Roman law recognized the bottomry contract, which included the preparation of an instrument of agreement and the deposit of monies with a money changer. Marine insurance grew rapidly in the 15th century.
Additionally, there were burial clubs in Rome that covered the expenses of funerals for its members via monthly dues. Early on, the insurance contract was also devised. It was well-known in ancient Greece and other maritime countries that traded with Greece.
Due to the tremendous development of international commerce and the degree to which commercial enterprises venture beyond their home nations, the global insurance industry grew significantly in the twentieth century. This evolution necessitated the establishment of a global network of offices to offer brokerage services, underwriting help, and claims handling, among other things.
Europe and North America account for the lion’s share of the world’s insurance industries. These firms are responsible for a significant portion of the world’s insurance requirements. The legal and regulatory obstacles that must be surmounted are substantial.
The major global trends in insurance include a gradual shift away from nationalism in insurance, the development of global insurance programs to cover the operations of multinational corporations, an increase in the use of reinsurance, an increase in the use of self-insurance programs administered by wholly-owned insurance subsidiaries (captive companies) by corporations, and an increase in the use of mergers between insurers and brokerage firms.
If danger is analogous to smoldering coal that may catch fire at any time, insurance is analogous to civilization’s fire extinguisher. Insurance’s central concept distribution of risk among many is as ancient as human existence.
Whether it was group hunting enormous elk to share the danger of being gored to death or delivering freight in many caravans to prevent losing the whole shipment to a raiding tribe, humans have always been afraid of risk. Countries and their inhabitants must disperse risk across vast populations and transfer risk to institutions capable of managing it. This is how insurance came into existence.
Ancient history of Insurance
According to some sources, the first written insurance policy emerged in ancient times on a Babylonian monument inscribed with King Hammurabi’s law. The Code of Hammurabi was one of the first instances of written legislation.
While most of these ancient regulations were severe, one provided basic protection in that a debtor was not required to repay their debts if a personal tragedy rendered repayment impossible (disability, death, flooding, etc.)
The medieval age history of Insurance
Throughout the Middle Ages, the majority of artisans were educated via the guild system. Apprentices worked for their masters for little or no remuneration throughout their childhoods. Once they achieved mastery, they paid guild dues and taught their own apprentices. The wealthiest guilds maintained sizable treasuries that served as a kind of insurance.
If a master’s practice was destroyed by fire a regular occurrence in medieval Europe’s predominantly wooden cities the guild would restore it using money from its own coffers. If a master is robbed, the guild will pay the master’s debts until the money begins to flow again. If a master becomes abruptly handicapped or murdered, the guild will assist them or their surviving family members.
This safety net enticed more people away from agriculture and into trades. As a consequence, both the quantity and variety of products accessible for commerce expanded. Guilds’ fundamental insurance model is still in use today in the form of group coverage.
History of Insurance for Ships
In the late 1600s, transportation between the New and Old Worlds was just getting started, as colonies were formed and exotic items were carried back. Underwriting developed in the same London coffeehouses that served as the British Empire’s unofficial stock market. The principal gathering location for merchants, ship owners, and others seeking insurance was a coffeehouse run by Edward Lloyd, subsequently of Lloyd’s of London.
A fundamental finance mechanism for trips to the New World was formed. Initially, merchants and businesses would seek money from the era’s venture capitalists. They, in turn, would assist in identifying potential colonists, often individuals from London’s most impoverished regions, and would buy goods for the journey.
In exchange, the venture investors were promised a portion of the profits from the items produced or discovered by the colonists in the Americas. It was popularly thought that in America, one could not take two left turns without coming upon a deposit of gold or other valuable metals. When it became clear that this was not entirely true, venture investors continued to finance expeditions in search of a piece of the new bountiful crop: tobacco.
After venture capitalists arranged a journey, merchants and ship owners traveled to Lloyd’s to pass over a copy of the ship’s cargo manifest to the investors and underwriters gathering there. Those interested in taking on the danger signed the manifest at the bottom, under the figure representing their part of the shipment (hence, underwriting). Thus, a single journey might have numerous underwriters who sought to diversify their risk by purchasing shares in multiple voyages.
By 1654, Blaise Pascal, the Frenchman who invented the calculator, and his countryman Pierre de Fermat had developed a method for expressing probabilities and comprehending risk levels. This development formalized the process of underwriting and reduced the cost of insurance.
Fire Insurance Emerges from the Ruins
The Great Fire of London in 1666 destroyed almost 13,000 structures.
London was still healing from the plague that had begun ravaging it a year earlier,6 and many survivors were displaced. As a result of the mayhem and fury that followed the London fire, groups of underwriters who had previously dealt primarily in maritime insurance founded organizations that supplied fire insurance.
The Evolution of Life Insurance
In the 16th and 17th centuries, life insurance started to develop in England, France, and Holland. In 1583, England issued the first known life insurance policy. However, due to a lack of methods for correctly assessing the risk, many of the organizations that sold insurance eventually failed.
That began to change in 1693, when astronomer and mathematician Edmund Halley, better known today as the discoverer of Halley’s Comet, created the first modern mortality chart. This sums the history of insurance in the world.
Meet Krishnaprasath Krishnamoorthy, a finance content writer with a wealth of knowledge and experience in the insurance, mortgage, taxation, law, and real estate industries.