It is the first question asked when buying a car, purchasing a home or renting a condo: do you have insurance in place? So, what exactly is insurance, and how did insurance come to be?
Insurance is a product that helps insulate businesses and people against risks. The insurance industry mitigates risks by advising on and directing the implementation of safety standards and protocols, spreads the risk from each individual to the larger community, and provides long-term financing for both the public and private sectors.
Communities were safeguarding against risks long before the term “insurance” was introduced. Looking back in time, prior to a monetized economy, if one person’s house was destroyed, the community as a whole would rally around them to build a new one. In order to ensure no one went hungry, granaries (store houses for grains) were built to indemnify against famines. This idea of working as a community to mitigate against a loss, is insurance in its simplest form.
The history of insurance dates back to ancient Babylonia. Early shipping merchants would practice basic insurance, by distributing their goods amongst several shipping vessels. In the event one of the vessels were destroyed, the merchants would only loose a portion of their cargo. Eventually, the shipping community started to pay insurance premiums to insure their goods. Using these pooled funds, merchants who lost their cargo would be reimbursed. Merchants who had loans paid their lenders an additional sum to guarantee against any loss while in-transit.
As history progressed, so did insurance.
Property insurance arose following the Great Fire of London in 1666 during which more than 13,000 houses were lost. The first British fire insurance companies were founded shortly thereafter. In the U.S., Benjamin Franklin formed the Philadelphia Contributionship in 1752 which was the first American company to offer fire insurance.
Lloyd’s of London was the first company to handle marine insurance policies in the early 1700’s. Around the same time, business insurance as we currently know it, was formed in the streets of London where merchants looking to insure their goods could meet with underwriters willing to accept the risks.
Auto insurance arose in the late 19th century with the invention of the automobile. More widespread auto insurance began after the First World War in urban areas, with the first mandatory auto insurance scheme introduced in the United Kingdom with the Road Traffic Act of 1930.
Insurance continues to evolve with technology and social policy, but the underlying principles of mitigating risk and spreading the cost of risk across a community remain today.
Do you have questions on this article or about insurance in general?
Contact Rizk Insurance today and we’ll help answer any inquiries you may have.