History of insurance

History of insurance

            The development of the modern business of insurance against risks, especially regarding cargo, property, death, automobile accidents, and medical treatment is history of insurance. The individual to the larger community, and provides an important source of long-term finance for both the public and private sectors. The insurance industry is generally profitable and provides attractive employment opportunities for white collar workers.

Ancient world:

In some sense, we can say that insurance dates back to early human society. We know of two types of economies in human societies: natural or non-monetary economies (using barter and trade with no centralized nor standardized set of financial instruments) and monetary economies (with markets, currency, financial instruments and so on). Insurance in the former case entails agreements of mutual aid. If one family's house gets destroyed, the neighbours are committed to help rebuild it. Granaries embodied another early form of insurance to indemnify against famines. These types of insurance have survived to the present day in countries or areas where a modern money economy with its financial instruments is not widespread.

The first methods of transferring or distributing risk in a monetary economy, were practised by Chinese and Babylonian traders in the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea.

At some point in the 1st millennium BC, the inhabitants of Rhodes created the 'general average'. This allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage.

The ancient Athenian "maritime loan" advanced money for voyages with repayment being cancelled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.

The Greeks and Romans introduced the origins of health and life insurance c. 600 BC when they created guilds called "benevolent societies" which cared for the families of deceased members, as well as paying funeral expenses of members. Guilds in the Middle Ages served a similar purpose. The Jewish Talmud also deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Medieval era

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks.

These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. The first printed book on insurance was the legal treatise On Insurance and Merchants' Bets by Pedro de Santarém (Santerna), written and published.

Modern insurance

The subscription room at Lloyd's of London in the early 19th century.

Insurance became more sophisticated in Enlightenment era Europe, and specialized varieties developed. Some forms of insurance developed in London in the early decades of the 17th century. For example, the will of the English colonist Robert Hayman mentioned two "policies of insurance" taken out with the diocesan Chancellor of London, Arthur Duck. Of the value of £100 each, one related to the safe arrival of Hayman's ship in Guyana and the other was in regard to "one hundred pounds assured by the said Doctor Arthur Ducke on my life".

Property insurance

Property insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667". A number of attempted fire insurance schemes came to nothing, but economist Nicholas Barbon and eleven associates established the first fire insurance company, the "Insurance Office for Houses", at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by his Insurance Office.

This system was soon exposed as terribly flawed, as rival brigades often ignored burning buildings once they discovered that it had no insurance policy with their company. Eventually, a solution was agreed upon in which all the insurance companies would supply money and equipment to a municipal authority charged with stationing fire prevention assets and firefighters equally around the city to respond to all fire.

In Colonial America, the first insurance company that underwrote fire insurance was formed in Charles Town (modern-day Charleston),South Carolina. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly Property insurance to spread the risk of loss from fire, in the form of perpetual insurance.He founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company made contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.

                  The mortgages that were underwritten by the federal government during this time included an insurance clause as a means of protecting the banks and lending institutions involved against avoidable losses. During the 1940s there was also the GI life insurance policy program that was designed to ease the burden of military losses on the civilian population and survivors.In this way,there occurs many incident in past and that was the revoulatory period of insurance and slowly it starts to develop.