History Of Insurance : The Origin & The Evolution of Insurance Industry

History of Insurance; Today What Insurance Is 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 If you die. Insurance can also be seen as a contract where you obtain financial protection or payback from losses from an insurance company.

History Of Insurance : The Origin of Insurance Industry

History of Insurance, Insurance History, Insurance, How Insurance work, Insurance case study

History of Insurance; 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 peoples 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.

The Guild System

History of Insurance; 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.

Foundation of Marine Insurance

History of Insurance; 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.

Lloyd’s of London

History of Insurance; 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 evolution to the Modern World

History of Insurance; 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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