History Of Insurance Coverage

By Author: Jerry Pickett
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When did the idea of insurance first spring up? Who was the first person to have something of value insured, and who sold them the protection? Insurance has been a part of human affairs for a surprisingly long time and has surfaced independently as a concept in a variety of cultures and eras. But where did it all start?

Insurance in the Ancient World

Although it's impossible to document the "invention" of insurance, some of the first recorded examples of insurance appear in Ancient Babylonia in 2100 B.C. When it comes to the idea of offering protection in the event of a loss, the Code of Hammurabi fits the bill as a very early insurance policy. The code allowed traders to pay a loan which was then used to secure the protection of their cargo as they traveled by caravan. In the event that the cargo was lost to thieves, its value would be reimbursed.

The Greeks also instituted a similar form of insurance to protect their sea-based shipping. It was the Ancient Romans who first began to discover a multitude of uses for insurance. The Romans invented burial insurance, where a family or group would pay into a ...
... communal fund. When one member of the family or group died, benefits were paid out to the survivors in order to alleviate the costs of a funeral.

Birth of the Insurance Underwriter

Even though these examples demonstrate the idea of insurance, the first actual insurance contracts did not show up until 1347 in Genoa. On these early policies, under an insurance proposal, individuals or groups would write their name and the amount of risk they were comfortable assuming. Because they would write these details under the proposal, the term underwriter came about.

These early underwriters had the same responsibilities as their modern counterparts, using statistics to calculate risks and arrive at premiums. In addition to his comet fame, astronomer Edmond Halley played a significant role in the development of modern insurance. In 1693, Halley created the first mortality table-a means of numerically assessing risk in order to underwrite life insurance policies. He did this by combining statistical laws of mortality with the principle of compound interest.

Although the ideas behind the mortality table laid some extremely important groundwork, Halley's table itself bore a fatal flaw; it incorporated the same rate regardless of age. This was remedied over half a century later when Joseph Dodson altered the chart by scaling rate to age.

The First Insurance Company

With the practice of insuring shipped cargo becoming common practice among the seafaring nations of Europe, it was only a matter of time before an official company was founded. In the late 1600s, the first insurance company was created at Lloyd's Coffee House in London, a popular location for traders and underwriters to meet for business. The simple coffee house quickly flourished into perhaps the first modern insurance company. Lloyd's got off to such a great start that the insurance company maintains a presence to this day; it's better known as Lloyd's of London.

Commerce Explosion

Commerce continued to grow wildly throughout the next century, increasing the demand for insurance. However, as the possibilities of commerce increased, so did the potential risks. The fact that cargo was being shipped across increasingly greater distances introduced more time and ways for goods to be lost, damaged, or stolen. As a result, more claims were being paid out every day, a potentially disastrous trend for the insurance industry. Fortunately, stockbrokers began to recognize the potential earning power of insurance companies and began to invest with an eye for expansion.

Insurance Companies in America

The New World of America proved to be a great place for the expansion of the insurance industry. In the late 1700s, insurance companies made their way to America. The first American insurance company was established in Charleston, South Carolina, a British Colony. Soon afterwards, fire insurance companies were created in New York City and Philadelphia.

The first large-scale insurance corporation in America was backed by the Presbyterian Church in Philadelphia, Pennsylvania. Although it was initially established for the church's ministers and their families, the Presbyterian Synod Insurance Company relented to public demand and began to assess risks and draft life insurance policies for the general public, catering to an ever-growing variety of insurance needs, including homeowner's and personal property insurance.

This lead to an insurance boom in the mid 1800s which in turn helped to build the insurance industry as it exists today. It was during this era that some modern insurance practices were first developed, including reinsurance which is the practice of multiple insurance companies covering a portion of each other's losses in the wake of a massive disaster.

Of course, the insurance industry continues to grow and modernize into the 21st century, expanding into the world of online commerce. By looking at the past, we can better understand mankind's long and storied history with the concept of insurance.
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