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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 neighbor, the other neighbors must help. Otherwise, neighbors will not
receive help in the future. This type of insurance has survived to the present
day in some countries where modern money economy with its financial instruments
is not widespread (for example countries in the territory of the former Soviet
Union).
Turning to insurance in the modern sense (i.e., insurance in a modern money
economy, in which insurance is part of the financial sphere), early methods of
transferring or distributing risk were practiced by Chinese and Babylonian
traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese
merchants travelling treacherous river rapids would redistribute their wares
across many vessels to limit the loss due to any single vessel's capsizing. The
Babylonians developed a system which was recorded in the famous Code of
Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants.
If a merchant received a loan to fund his shipment, he would pay the lender an
additional sum in exchange for the lender's guarantee to cancel the loan should
the shipment be stolen.
Achaemenian monarchs were the first to insure their people and made it official
by registering the insuring process in governmental notary offices. The
insurance tradition was performed each year in Norouz (beginning of the Iranian
New Year); the heads of different ethnic groups as well as others willing to
take part, presented gifts to the monarch. The most important gift was presented
during a special ceremony. When a gift was worth more than 10,000 Derrik
(Achaemenian gold coin) the issue was registered in a special office. This was
advantageous to those who presented such special gifts. For others, the presents
were fairly assessed by the confidants of the court. Then the assessment was
registered in special offices.
The purpose of registering was that whenever the person who
presented the gift registered by the court was in trouble, the monarch and the
court would help him. Jahez, a historian and writer, writes in one of his books
on ancient Iran: "Whenever the owner of the present is in trouble or wants to
construct a building, set up a feast, have his children married, etc. the one in
charge of this in the court would check the registration. If the registered
amount exceeded 10,000 Derrik, he or she would receive an amount of twice as
much".
A
thousand years later, the inhabitants of Rhodes invented the concept of the
'general average'. Merchants whose goods were being shipped together would pay a
proportionally divided premium which would be used to reimburse any merchant
whose goods were jettisoned during storm or sinkage.
The
Greeks and Romans introduced the origins of health and life insurance c. 600 AD
when they organized guilds called "benevolent societies" which cared for the
families and paid funeral expenses of members upon death. Guilds in the Middle
Ages served a similar purpose. The Talmud deals with several aspects of insuring
goods. Before insurance was established in the late 17th century, "friendly
societies" existed in England, in which people donated amounts of money to a
general sum that could be used for emergencies.
Separate insurance contracts (i.e., insurance policies not bundled with loans or
other kinds of contracts) were invented in Genoa in the 14th century, as were
insurance pools backed by pledges of landed estates. These new insurance
contracts allowed insurance to be separated from investment, a separation of
roles that first proved useful in marine insurance. Insurance became far more
sophisticated in post-Renaissance Europe, and specialized varieties developed.
Toward the end of the seventeenth century, London's growing importance as a
centre for trade increased demand for marine insurance. In the late 1680s, Mr.
Edward Lloyd opened a coffee house that became a popular haunt of ship owners,
merchants, and ships’ captains, and thereby a reliable source of the latest
shipping news. It became the meeting place for parties wishing to insure cargoes
and ships, and those willing to underwrite such ventures. Today, Lloyd's of
London remains the leading market (note that it is not an insurance company) for
marine and other specialist types of insurance, but it works rather differently
than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London, which
in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas
Barbon opened an office to insure buildings. In 1680, he established England's
first fire insurance company, "The Fire Office," to insure brick and frame
homes.
The
first insurance company in the United States underwrote fire insurance and was
formed in Charles Town (modern-day Charleston), South Carolina, in 1732.
Benjamin Franklin helped to popularize and make standard the practice of
insurance, particularly against
fire in the form of
perpetual insurance. In 1752, he founded the Philadelphia Contributionship for
the Insurance of Houses from Loss by Fire. Franklin's company was the first to
make contributions toward fire prevention. Not only did his company warn against
certain fire hazards, it refused to insure certain buildings where the risk of
fire was too great, such as all wooden houses.
In
the United States, regulation of the insurance industry is highly Balkanized,
with primary responsibility assumed by individual state insurance departments.
Whereas insurance markets have become centralized nationally and
internationally, state insurance commissioners operate individually, though at
times in concert through a national insurance commissioners' organization. In
recent years, some have called for a dual state and federal regulatory system
for insurance similar to that which oversees state banks and national banks.
In the state of New York, which has unique laws in
keeping with its stature as a global business centre, former New York Attorney
General Eliot Spitzer was in a unique position to grapple with major national
insurance brokerages. Spitzer alleged that Marsh & McLennan steered business to
insurance carriers based on the amount of contingent commissions that could be
extracted from carriers, rather than basing decisions on whether carriers had
the best deals for clients. Several of the largest commercial insurance
brokerages have since stopped accepting contingent commissions and have adopted
new business models. |
