A Brief History of Insurance

Insurance dates back to pre-history. To the early years when people banded into groups and pitched in to help each other in times of need. Insurance was not monetary back then, but of mutual aid.

The first methods of transferring or distributing risk in a monetary economy was practiced by Chinese and Babylonian traders in the 3rd and 2nd millennia BC. A system was developed around 1750 BC that gave merchants that sent their goods by boat the opportunity to pay a sum of to a third party to limit the loss of their goods due to a vessel capsizing.

At some point, groups of merchants banded together and self-insured, meaning instead of paying an outside party, they would make contributions to protect a member from loss.

Around the 14th century, property insurance was introduced, both monetary and non-monetary. If a dwelling burned to the ground, townsfolks would help in restoration of the structure. There were no contracts or regulations, only the villager’s words.

Property insurance as we know it today can be traced back to the great fire of London in 1666 which destroyed 13,000 homes. The devastating effect of this event converted the development of insurance from a matter of convenience to into a matter of urgency. A great number of fire insurance schemes came to nothing until 1681 twelve associates established the first insurance company named the “Insurance Office for Houses.” From this point in time, many insurance companies sprung up, primarily focusing on fire insurance.

In 1752 Colonial America, the first insurance company in Charles Town, now known as Charleston, South Carolina was formed. Benjamin Franklin founded the Philadelphia Contribution for the Insurance of Houses from Loss by Fire, which made contributions towards fire prevention. Not only did he warn against certain fire hazards, but also refused to insure certain buildings where the risk of fire was too great, such as wooden houses. This was the first attempt at underwriting as we know today.

The first life insurance policies were issued by the Amicable Society for a Perpetual Assurance Office, founded in London in 1706. The way it worked was that each member paid a fixed annual payment per share from one to three shares, insuring the lives of ages between 12 to 55. At the end of the year, a portion of the contributions were divided among the wives and children of the deceased members in proportion to the amount of shares the deceased owned.

The first life tables – today’s actuary tables – were written in 1693, but was not widely accepted until the 1750’s where mathematical and statistical tools were put in place for the development of modern life insurance. In 1762 the Society for Equitable Assurances was established – the world’s first mutual insurer.

From then, more and more companies sprung up, insuring all sorts of property and through the years, refined the mathematical tables in order to charge fairer and more accurate premiums.

The insurance industry helps spread risks from individuals to a larger community and provides a source of long-term financing in both the public and private sector.

Looking at it another way, insurance was created to pay 100 cents on the dollar at a future date for only pennies a year.