The
History of Insurance
The roots of insurance might be traced to Babylonia, where
traders were encouraged to assume the risks of the caravan trade through loans
that were repaid (with interest) only after the goods had arrived safely—a
practice resembling bottomry and given legal force in the Code of Hammurabi
(c.2100 BC). The Phoenicians and the Greeks applied a similar system to their
seaborne commerce. The Romans used burial clubs as a form of life insurance,
providing funeral expenses for members and later payments to the survivors.
With the growth of towns and trade in Europe, the medieval
guilds undertook to protect their members from loss by fire and shipwreck, to
ransom them from captivity by pirates, and to provide decent burial and support
in sickness and poverty. By the middle of the 14th cent., as evidenced by the
earliest known insurance contract (Genoa, 1347), marine insurance was
practically universal among the maritime nations of Europe. In London, Lloyd's
Coffee House (1688) was a place where merchants, shipowners, and underwriters
met to transact business. By the end of the 18th cent. Lloyd's had progressed
into one of the first modern insurance companies. In 1693 the astronomer Edmond
Halley constructed the first mortality table, based on the statistical laws of
mortality and compound interest. The table, corrected (1756) by Joseph Dodson,
made it possible to scale the premium rate to age; previously the rate had been
the same for all ages.
Insurance developed rapidly with the growth of British
commerce in the 17th and 18th cent. Prior to the formation of corporations
devoted solely to the business of writing insurance, policies were signed by a
number of individuals, each of whom wrote his name and the amount of risk he
was assuming underneath the insurance proposal, hence the term underwriter.
The first stock companies to engage in insurance were chartered in England in
1720, and in 1735, the first insurance company in the American colonies was founded
at Charleston, S.C. Fire insurance corporations were formed in New York City
(1787) and in Philadelphia (1794). The Presbyterian Synod of Philadelphia
sponsored (1759) the first life insurance corporation in America, for the
benefit of Presbyterian ministers and their dependents. After 1840, with the
decline of religious prejudice against the practice, life insurance entered a
boom period. In the 1830s the practice of classifying risks was begun.
The New York fire of 1835 called attention to the need for
adequate reserves to meet unexpectedly large losses; Massachusetts was the
first state to require companies by law (1837) to maintain such reserves. The
great Chicago fire (1871) emphasized the costly nature of fires in structurally
dense modern cities. Reinsurance, whereby losses are distributed among many
companies, was devised to meet such situations and is now common in other lines
of insurance. The Workmen's Compensation Act of 1897 in Britain required
employers to insure their employees against industrial accidents. Public
liability insurance, fostered by legislation, made its appearance in the 1880s;
it attained major importance with the advent of the automobile.
In the 19th cent. many friendly or benefit societies were
founded to insure the life and health of their members, and many fraternal
orders were created to provide low-cost, members-only insurance. Fraternal
orders continue to provide insurance coverage, as do most labor organizations.
Many employers sponsor group insurance policies for their employees; such
policies generally include not only life insurance, but sickness and accident
benefits and old-age pensions, and the employees usually contribute a certain
percentage of the premium.
Since the late 19th cent. there has been a growing tendency
for the state to enter the field of insurance, especially with respect to
safeguarding workers against sickness and disability. The U.S. government has
also experimented with various types of crop insurance, a landmark in this
field being the Federal Crop Insurance Act of 1938. In World War II the
government provided life insurance for members of the armed forces; since then
it has provided other forms of insurance such as pensions for veterans and for
government employees.
After 1944 the supervision and regulation of insurance
companies, previously an exclusive responsibility of the states, became subject
to regulation by Congress under the interstate commerce clause of the U.S.
Constitution. Until the 1950s, most insurance companies in the United States
were restricted to providing only one type of insurance, but then legislation
was passed to permit fire and casualty companies to underwrite several classes
of insurance.
Many firms have since expanded, many mergers have occurred, and multiple-line companies now dominate the field, creating the industry we have today.