As human beings, we’ve been quite canny about spreading risk among many for a long time. Risk management was as sharp a glint in our ancestors’ eye as it is in ours today. Whether injury on a hunt, attack by another tribe, or shipping cargo in separate ships, avoiding disaster by involving groups in support and contribution was well understood. Today, the numbers are carried on paper, but consideration for possible loss is as high as ever.
The Roman Invention:
Insurance as a financial safety net in case of unexpected disaster remains a common thread throughout its long history. In fact, we could blame the Romans for the origins of insurance. A rather original mind in one Caius Marius, a Roman military leader, decided to create a burial club for his troops, so that in the event of the death of a club member, other members would pay for the funeral expenses.
In general the Romans took to this idea, because they believed anyone improperly buried would become an unhappy ghost, so the clubs were embraced by the government. These clubs evolved to also provide a stipend to the survivors of the deceased, much like today’s insurance policies. However, after the Roman Empire fell, the practice fell away.
Centuries passed before the concept was revived in the 17th century when ships were sailing the seven seas, and trade and commerce were becoming the new way of life and the underpinnings of modern economies. Cargo lost at sea to either weather or pirates became a great concern, and the idea of covering losses in some way began to surface. In 1600s, ships sailing to the New World would secure multiple investors to spread the risk around.
Shareholders were keen, and the loss shared among many became an important new financial arena.
Coffee Houses and a Maturing Industry:
Interestingly enough, coffee and insurance seem to go together; new ideas of insurance surfaced in 1688 in Edward Lloyd’s Coffee House, a small shop on London’s Tower Street and a popular gathering place for ship captains, ship owners and merchants. Decades later, in 1769, a group of professional underwriters established the New Lloyd’s Coffee House, which would eventually evolve into Lloyd’s of London.
Et voila…the idea of insurance spread and became popular. Even more popular when women were allowed to purchase life insurance, and the dire warnings of the church – deriding insurance as ‘gambling’ – were ignored. A boom for the life insurance industry was unleashed – and many of today’s largest life insurers were formed in this period.
Fire Insurance: the Great Fire of London
In 1666, the Great Fire of London destroyed more than 13,000 buildings. It was a disaster no one had planned for, and many people lost loved ones and their homes. There was devastation, and people looked to blame authorities; riots broke out and there was a realisation that family and property were as valuable assets worth insuring as cargo on the seas. Underwriters who had dealt exclusively in marine insurance now formed companies that offered fire insurance. The Great Fire may have destroyed London, but it had given rise to one of the largest insurance industries in the world.
Early Group Coverage by Medieval Guilds:
The rise in medieval Europe of the guild system gave members the opportunity to pay into a pool that would cover any losses. Most craftsmen were trained through the guild system, and the wealthier guilds developed large coffers that acted as an insurance fund.
If a master’s practice burned down – the guild would rebuild it using the money from its own fund. If a master was robbed, the guild would cover their obligations until they were able to get their business back on track. If a master was suddenly disabled or killed, the guild would support them or their surviving family. Really no different to policy benefits offered today. This basic style of insurance developed by the guilds is still around today in the form of group coverage.
The first American insurance initiated in the colonies, and in 1760 was recognised as life insurance. Ultimately, it took more than 100 years for insurance to establish itself in America. When it finally did, it brought maturity in both practice and policies developed during that same period in Europe. Mutualisation of life insurance companies was the result of the financial crisis of 1837, and during the years between 1838 and 1849, no less than 17 mutuals were chartered with a small amount of capital.
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