History of Insurance

Today, insurance entails a written pledge from a company, government agency, or other organization that promises the insured compensation for a specific loss, damage, illness, or death in exchange for paying a premium.

So how did insurance come to be what it is today? Keep reading to find out!

The Origins of Insurance

The concept of insuring goods, vehicles, and equipment against loss can be traced back to China more than 5,000 years ago. The earliest methods of reducing risk involved merchants transferring their potential losses by pooling their funds in exchange for a premium. The most prominent example comes from merchants who sent boats up and down local rivers. They'd insure their goods in this manner in case a boat sank or their cargo was damaged or stolen.

Other ancient civilizations that engaged in various forms of maritime indemnity coverage included:

  • The Greeks.
  • The Romans.
  • The Phoenicians.
  • The Babylonians.

The Code of Hammurabi, dating from around 1750 B.C., established the first written policy on how the process of transferring risk from merchants to moneylenders, in the form of premiums for restitution, would be conducted. These rules were carved and discovered on an ancient Babylonian obelisk.

Coverage During Colonial Times

In the 11th century, Danish investors and business owners formed guilds to collectively establish stronger forms of maritime insurance policies, protecting larger shipments over greater distances.

Written records of insurance coverage have also been discovered in the merchant cities along the Mediterranean coast (e.g. Florence and Venice). Like the earliest Chinese merchants, these Mediterranean investors mutually pooled their assets and charged premiums. The funds would then be issued to guild members in case they suffered a loss. This is still the basic tenet of how vehicle group coverage works today.

In the early 1700s, Lloyd's of London became the first company to handle maritime insurance policies. The company maintained a database of customers and various ships, as well as their estimated value. The company would underwrite policies for its clients based on these values and the perceived risks. Even today, Lloyd's of London is still a major insurer.

A few years later, Benjamin Franklin introduced the concept of spreading risk amongst the American colonies. In 1752, he helped to create the first fire insurance company in Philadelphia. Over time, as the number of insurance companies grew, they set standardized rates, sufficient to cover potential future payouts. These rates were based on the work of Blaise Pascal and Pierre de Fermat, who developed a calculator and methods for determining probabilities that led to the creation of the first actuarial tables. Updated versions of these tables are used to this day when determining rates.

The Advent of Car Insurance

The development of the automobile led to the need for car insurance. Early vehicles were powered in large by steam engines until the first gasoline internal combustion engine vehicle was produced in 1893 by Charles and Frank Duryea. This innovation made automobiles more popular.

In the beginning, auto insurance was designed to protect vehicle owners from loss based on the same principles used in the maritime industry. In 1897, the first vehicle policy that also covered liability was issued to Gilbert Loomis in Dayton, Ohio.

With the advent of Henry Ford's assembly line, cars became more affordable and their numbers grew. Unfortunately, larger numbers of inexperienced drivers, poor road conditions, and disorganized traffic made driving a dangerous endeavor. The need for liability coverage was readily apparent. In 1927, Massachusetts was the first state to pass a law making it mandatory for car owners to have liability coverage. Over the ensuing decades, almost every state passed similar legislation.

Why Is Auto Insurance Ubiquitous?

After World War II, automobile manufacturing boomed, and the interstate highway system was developed. The need for reliable auto coverage grew even more as a greater number of vehicles traveled longer distances. As the driving abilities of motorists improved and cars became safer, insurers began to offer discounts beginning in 1959.

In the mid-1990s, the internet grew exponentially. Many new industries, businesses, and services began to sprout up in the virtual world, including companies offering car insurance online.

Today, the ability to purchase coverage online means consumers have a wide variety of choices. The technology enables you to find quality coverage at an affordable price. As a result, car insurance is readily available and relatively easy to obtain. Being able to shop online is just another milestone in the history of auto insurance.