The history of insurance

The base insurance principal of spreading risk among a large number of people has been around for almost as long as humans have existed. Cave men have hunted giant elks in groups to distribute the risk of being badly injured or killed during the hunt and ancient ship merchants have transported cargo in several different caravans to avoid losing whole shipments to pirates or accidents over the history of insurance.

In the 21st Century, the insurance industry has grown into a profitable niche that provides a wide range of covers to policy holders and attractive white collar employment opportunities to job seekers.

Ancient insurance

The Babylonian and Chinese traders were the first in the history of insurance to employ systems to transfer or redistribute risk among a larger group of people. In the 3rd millennia BC, Chinese merchants shipping cargo through treacherous waters redistributed their wares among many vessels to limit possible losses due to any single ship wreck or ambush.

Code of Hammurabi

The Babylonians formulated the famous 1750 BC Code of Hammurabi, which documented a risk distribution system that was widely practised by 2nd millennia BC Mediterranean ship merchants. The system recognised formal agreements where merchants received loans to fund their shipment. Lenders were assured their loans would be repaid with high interest if they in turn agreed to cancel the loan should the shipment be stolen while on transit.

Achaemenian monarchs’ system

Achaemenian monarchs of ancient Persia were the first to insure their citizens. Around the beginning of every Persian New Year, individuals as well as leaders of different ethnic groups in the Kindom presented gifts to the monarch in a special ceremony. Gift of more than 10,000 Achaemenian gold coins was registered in special offices.

When the giver of a registered gift was in trouble or was engaged in important matters, such as building a house or having his children marry the monarch would help him financially, depending on the measure of his gift. If the money registered with the special offices was more than 10,000 Achaemenian gold coins, the gift giver would receive twice that amount.

Rhodes “general average” policy

Modern insurance began to take shape in Rhodes, the ancient capital of Rhodes Island located in the eastern Aegean Sea in Greece, about a thousand years after the Achaemenian monarchs. The Rhodesians used the “general average” system where merchant groups paid premiums to insure their goods that were being shipped together. The premiums collected were later used to compensate merchants for any damage or loss of goods that occurred during shipping.

Evolution of insurance

In the 14th Century in Genoa, a sea port city in northern Italy, the first insurance contracts that were not bundled with loans and other kinds of contracts were introduced. These separate insurance policies were secured by landed estates much like modern insurance policies. By the late 17th Century, insurance had established with intuitively varied premium contributions that depended on the risks involved.

Insurance as we know it in the 21st Century traces its origins to the 1666 Great Fire of London that destroyed more than 13,000 houses. Following the aftermath, a renowned physician by the name Nicholas Barbon founded in 1680 the Fire Office in London, the first fire insurance company in the UK and quite possibly the world.

Since the establishment of the Fire Office in London, vast numbers of insurance companies covering every possible risk have sprouted worldwide. Most of these companies have as exciting stories of their establishment as the history of insurance itself.

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