Insurance History

Originally invented by the Babylonians
Insurance has been around
since early seagoing days

The concept of property insurance originated in the days of the Babylonians around 1750 B.C. when merchants developed a system to protect themselves from financial loss if their shipments were lost or stolen.

The early property insurance system, recorded in the Code of Hammurabi, provided for merchants to pay a premium to their financial backers in return for a guarantee that their debts would be cancelled in case of unexpected loss of their cargo. Here's that concept of "risk management" again -- the merchants were paying a premium to transfer their risk of loss to their lenders.

Around 600 A.D., the Greeks and Romans developed their own versions of health and life insurance by forming groups that cared for the families and funeral expenses of members upon death.

Other specialized lines of insurance started developing in post-Renaissance Europe, as London was becoming a major trade center. With all of the marine explorations and shipping, a more need developed for a more sophisticated type of insurance. Lloyd's of London was formed to meet this need, beginning in a London coffee house frequented by mariners and investors alike, Now, Lloyd's of London remains the largest insurer in specialty markets. It should be noted that Lloyd's is not a typical insurance company -- it essentially brokers the risk to its private investors. That's one of the reasons the company is able to insure unusual things such as priceless works of art, a musician's fingers, a model's face, etc.

Fire insurance protection for home and building owners did not come into being until the late 1600's when a savage fire consumed 13,200 homes in London in 1666. Recognizing the need to give homeowners some sort of protection, Nicholas Barbon developed a system to insure brick and mortor homes and buildings. In 1680, he set up an office and began offering what has become the modern day model of insurance.

Fire insurance was the primary business of the first insurance company in the U.S., formed in Charleston, South Carolina, in 1732. Benjamin Franklin was so intrigued by the concept of fire insurance that, in 1752, he formed his own insurance company -- Philadelphia Contributorship for the Insurance of Houses from Loss by Fire. Franklin's contribution to the insurance industry went far beyond the mouthful of words in his company's name. He was the first to begin educating consumers about fire dangers and fire prevention.

Unfortunately, the insurance industry has lost Franklin's benevolent focus and has become highly politicized with decisions driven more by corporate greed than by consumer concern. This is seen more and more in the health insurance industry where insurance company administrators instead of physicians are making decisions about who lives and who dies.

Looking into the future, the insurance industry may be in for a giant shakeup and reorientation after the multi-billion dollar losses sustained in the natural disasters of the early 2000's, and new line of insurance, "terrorism insurance," is sprouting out of the increase in terrorist attacks worldwide.

Can the current insurance model survive in the face of catastrophic losses due to natural disasters and terrorist acts? The way the industry has been operating, they probably will simply change their definition of "Acts of God" and start denying more and more claims.

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