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If risk is like a smoldering coal that may spark a fire at any moment, then insurance is our fire extinguisher.
Countries and their citizens need something to spread risk among large numbers of people and to move risk to entities that can handle it. This is how insurance emerged. Read on to learn about how insurance evolved and how it can work to protect you from being burned by risk.(
King Hammurabi's Code
The main concept of insurance - that of spreading risk - has been around as long as human existence. Whether it was hunting giant elk in a group to spread the risk of being the one gored to death or shipping cargo in several different caravans to avoid losing the whole shipment to a marauding tribe, people have always been wary of risk.
The first written insurance policy appeared in ancient times on a Babylonian obelisk monument with the code of King Hammurabi carved into it. The "Hammurabi Code" was one of the first forms of written laws. These ancient laws were extreme in most respects, but it offered basic insurance in that a debtor didn't have to pay back his loans if some personal catastrophe made it impossible (disability, death, flooding, etc.).
In the dark and middle ages, most craftsmen were trained through the guild system. Apprentices spent their childhoods working for masters for little or no pay. Once they became masters themselves, they paid dues to the guild and trained their own apprentices. The wealthier guilds had large coffers that acted as a type of insurance fund. If a master's practice burned down, a common occurrence in the wooden hovels of medieval Europe, the guild would rebuild it using money from its coffers. If a master were robbed, the guild would cover his obligations until money started to flow in again. If a master were suddenly disabled or killed, the guild would support him or his widow and family. This safety net encouraged more and more people to leave farming and take up trades. As a result, the amount of goods available for trade increased, as did the range of goods and services available. The style of insurance used by guilds is still around today in the form of "group coverage".
The practice of underwriting emerged in the same London coffeehouses that operated as the unofficial stock exchange for the British Empire. In the late 1600s, shipping was just beginning between the New World and the old as colonies were being established and exotic goods were ferried back. A coffeehouse owned by Edward Lloyd, later of Lloyd's of London, was the primary meeting place for merchants, ship owners and others seeking insurance.
In 1666, the great fire of London destroyed around 14,000 buildings. London was still recovering from the plague had that ravaged it a year earlier, and many survivors found themselves without homes. As a response to the chaos and outrage that followed the burning of London, groups of underwriters who had dealt exclusively in marine insurance formed insurance companies that offered fire insurance. Armed with Pascal's triangle, these companies quickly expanded their range of business. By 1693, the first mortality table was created using Pascal's triangle and life insurance soon followed.
Insurance companies thrived in Europe, especially after the industrial revolution. In America, the story was very different. Colonists' lives were fraught with dangers that no insurance company would touch. As a result of lack food, wars with indigenous people and disease, almost three out of every four colonists died in the first 40 years of settlement. It took more than 100 years for insurance to establish itself in America. When it finally did, it brought the maturity in both practice and policies that developed during that same period of time in Europe.
History of insurance refers to the development of a modern laws and market in insurance against risks. In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future.
interesting post w/neat info. Don't forget the "indulgences" sold by the catholic church to insure salvation and limited times in purgatory! (the original fire insurance)