Principles of Insurance (Part 1)

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History of insurance

"Risk is uncertainty, and uncertainty is one of the fundamentals facts of life." (Frank H. Knight, American economist)

Where did insurance originally come from? Though it would not be called "insurance" as you and I know it, one of the oldest known forms of risk transfer was the practice of bottomry used by the ancient Greeks. Bottomry provided that a ship not returning to port was absolved of any debt on the ship itself or its cargo. It is said that the modern concept of property and casualty insurance originated from bottomry.

Believe it or not, the first evidence of fire insurance appears to go back all the way to 2500 B.C. among the Assyrians.

Hammurabi, a Babylonian king who lived around 4,000 years ago, literally set into stone approximately 300 written codes of law. Among these codes was what is often considered to be the first ever insurance policy, which guaranteed the safe arrival of goods by caravan.

Later, the Phoenicians and the Greeks produced insurance-like measures for their maritime trading.

In medieval times, the various guilds protected their members from exposure to loss by fire and shipwreck, provided respectable burials, and ensured support in times of sickness and poverty.

Some assert that the very first insurance contracts were being underwritten in Genoa in the 1300s.

However, insurance as we know it today did not exist until the 16th century, when the first definitive insurance legislation was passed in England. It was in the forty-third year of Queen Bess' reign that these words appear:

..."to have from the asurance made of their goodes, merchandizes, ships and things adventured, or some parte thereof, at suche rates and in such sorte as the parties assurers admit the parties assured can agree, chich course of dealinge in commonlie termed a policie of assurance...but the losse lighte the rather easilie upon many than heavilie upon fewe."

Okay, obviously spelling conventions have changed over time, but you get the idea: people at that time saw the need for what we would call insurance policies.

In 1666, the catastrophe that was the Great Fire of London served to accentuate that need for insurance. By 1720, England saw the chartering of the first insurance corporations (London Assurance and Royal Exchange Assurance).

Meanwhile in America, the first mutual insurance companies - such as the Friendly Society and the Charleston, South Carolina, and Philadelphia Contributionship - were established around 1735. These were followed by the first stock insurance company in the United States - The Insurance Company of North America - in 1792.

Over time, the various types of insurance appeared on the market. Casualty insurance made its debut in 1863 with the formation of Travelers Insurance Company. The first standard fire insurance policy was written in Massachusetts in 1873. On February 1, l898 Travelers Insurance Company issued the first automobile policy in the U.S. to Dr. Truman J. Martin of Buffalo, New York. It was written on a "Teams Liability Policy". In l902, Boston Insurance wrote the first physical damage auto policy to a Mr. William Wallace. That policy was written on an Ocean Marine form.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.