Insurance Through the Ages

From watching one another’s back to seeking cover from cyberattacks, people have sought to minimize risk for thousands of years.

The concept of insurance has evolved over thousands of years. For early humans, risk management took the form of safety in numbers – living and hunting in groups to spread out the risk posed by predators and starvation. Later, community members helped one another rebuild shelter in times of loss and stored surplus food to safeguard against famine. Today, insurance covers just about everything, including space satellites and the threat of cyberattacks.

“No financial transaction could happen without insurance,” said Thom Rickert, vice president and head of marketing at Trident Public Risk Solutions. “Who would take the risk of moving cargo from here to there without some assurance that they would not face financial ruin if the cargo was lost? Who would loan money on a home or business? The concept of risk sharing has been around for millennia. It’s the reason insurance exists.”

Insurance got its start on the seas

All sorts of insurance coverage are available today, but marine insurance is broadly acknowledged as the earliest known form. As many as 5,000 years ago, Chinese merchants already were hedging against shipping losses by spreading cargo among multiple ships. Babylonian ship merchants took out loans on shipments and paid a “loan forgiveness” fee to lenders in case of loss or theft at sea. This form of insurance law was recorded in the Code of Hammurabi, a list of several hundred laws curated by the Babylonian ruler of the same name during his reign from 1792 B.C. to 1750 B.C.

The concept of sacrificing a portion of a shipment in order to save the majority of cargo or human life took root in Rhodes in the first century B.C. This idea forms the basis of the law of general average still in use today, and compels merchants to split up the financial loss of dumped cargo to protect the greater whole.

Marine insurance found its center at Lloyd’s of London, the global insurance marketplace that began in Edward Lloyd’s London coffee shop in 1688. Lloyd’s became the go-to spot for shipping news and marine insurance, and today its syndicates write specialty insurance policies around the world on a staggering range of risk.

The impact of the Great Fire of London on insurance

Fires were a constant threat in 17th-century England, but the Great Fire of London in 1666 was so devastating it kindled the birth of organized insurance. The fire began in a bakery on Pudding Street and destroyed more than 13,000 houses and dozens of churches over five days. In an effort to avoid similar devastation, Nicholas Barbon, a physician, economist and builder during the city’s reconstruction, developed the idea of fire insurance. He founded The Insurance Office, the world’s first insurance company. The company hired water brigades to fight fires in the buildings it insured, which were identified by company signs called “firemarks.” Other companies formed their own firefighting teams, before municipal firefighting services were organized.

“An ounce of prevention”

A firefighter’s helmet was among the many hats founding father Benjamin Franklin wore. Franklin’s famous line, “an ounce of prevention is worth a pound of cure,” referred to his call for firefighting preparedness. In 1736, Franklin established the Union Fire Company in Philadelphia, one of America’s first organized volunteer fire departments. Along with fellow firefighters, in 1752 Franklin organized the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Now the oldest successful property insurance company in the nation, Philadelphia Contributionship followed practices then that are still in use today, such as inspecting properties as a condition of underwriting policies.

Insurance keeps pace with innovation            

As new types of risk have emerged, insurance programs have followed.

  • In 1848, the high number of railway accidents got accident insurance rolling in England with the Railway Passengers Assurance Company.
  • Just three years later, the first insurance policy for a car was written in Ohio, although it was technically a horse-and-carriage policy. A year later, the first specifically written car insurance policy was issued in Buffalo, New York.
  • Insurance coverage took flight in 1911 with the first aviation insurance policy written by Lloyd’s, which then reached for the stars when it wrote the first space satellite insurance policy covering the world’s first commercial satellite, the Intelsat 1, in 1965.
  • More recently, rapidly advancing digital technology hastened the arrival of cyber insurance policies in the late 1990s.

The push to innovate in insurance continues today, as digitalization and the concept of insurtech compel the industry to contemplate the future and what it might bring.

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