The history of insurance goes back as far as time immemorial, and shows that – no matter how big they are today – insurance companies still operate on what is essentially an ancient system.
In this article, we’ll tell you a bit about the history of insurance, including some of the key moments that have helped to shape the insurance world as we know it today, and explain why insurance is as important as ever in the modern world.
The history of insurance
While many insurance companies today are global enterprises protecting trillions of dollars worth of assets, in fields ranging from private possessions to aerospace equipment, insurance is – and always has been – a very simple transaction.
A client pays premiums to an insurance company, and in return the insurer shoulders the risk for the client’s assets. If those assets are lost, damaged or destroyed, the insurer then pays out the value of the asset.
The cost of the premiums, which need to be paid regularly (say, every month), are determined based on the value of risk the insurer takes on.
The Code of Hammurabi
The concept of insuring one’s assets – whether that is their personal possessions, their business interests or even their health and their life – has its origins in prehistoric society.
The Code of Hammurabi, a Babylonian legal text dating from around 1750 B.C., contains the first instance of a policy outlining the concept of ‘liability.’ The code states that a broker who loses or damages his client’s assets will be eligible to recoup the losses – unless the assets were lost in an event called an ‘Act of God’, i.e. one that was totally unavoidable.
Furthermore, it states that a sailor who has damaged another sailor’s ship in an accident will be liable to pay for the repairs, both to the other ship, and to their own ship if it was owned by someone else. Liability later became an important aspect of insurance law.
The citizens of Rhodes in Greece took this idea one step further when, in about 1000 B.C., they worked out the concept of general averages.
This is a concept still used in maritime law today, and means that if a ship loses its cargo – whether by jettisoning it to escape from a storm, or as a result of piracy – all merchants who were shipping items on board that ship must agree to pay an equal percentage of the losses. In order to protect themselves against these potentially large losses, merchants would often pay a share of the insurance up-front, with the owner of the ship liable for any additional costs.
The Athenians developed this concept further still by working out that it was, on average, more risky to ship cargo at certain times of year. Therefore, merchants would have to front a larger sum of money in the precarious winter months, or during periods of war. The concept of risk has since become integral in working out the cost of insurance policies.
Roman burial societies
Funerals were a big thing in Ancient Rome, and wealthy Romans would often pay vast sums of money to have either themselves or their family members commemorated after death. Romans had a taste for huge, lavish funerals and elegant tombs, which sometimes took the form of whole villas built to house a family’s urns.
In order to help pay for these enormous and expensive occasions, Romans would form burial societies. In life, they would pay a monthly due (which we could think of as similar to an insurance premium) to these societies, for however long they lived. Then, when they died, the funeral society would pay for the patron’s tomb, funeral and any other commemorations. Roman funeral societies are often considered the earliest form of life insurance.
In the Mediaeval era, society was dominated by guilds. These were societies of tradespeople, largely responsible for protecting the interests of their members in return for a fee. As part of this service, the guilds also offered several forms of insurance.
So, if a blacksmith’s forge burnt down, or if a carpenter was robbed, the guild would recuperate their losses. Or, if a stonemason became disabled or died suddenly, the guild would pay money to his family to ensure they could survive without his income.
These insurance policies were so popular that they encouraged many farmers to leave their farms to take up trades, leading to a boom in labour that helped to fuel the growth of towns and cities.
The Great Fire of London
In 1666, a small fire started at a bakery in Pudding Lane and soon spread across the entire city of London. At that time, the city was composed of mostly timber-framed buildings very close together, which caught fire very easily.
After the fire had run its course, many people were left homeless while the city was rebuilt. This highlighted the need for two things: firstly, that the city needed a professional fire service; secondly, that homeowners and business owners needed insurance in case such an event ever happened again.
Responding to this need, fire insurance companies sprung up. They insured the landlords, of course, but they knew the best case scenario was to stop the buildings catching fire in the first place, so they also created their own fire services.
Clients were given plaques to put on the sides of their houses and, were a fire to break out, the insurance company’s fire services would help to put out the fire. Then again, if a house was displaying a different-coloured plaque, they would ignore it entirely!
Lloyds of London
The year is 1688, the place is Tower Street, London. Edward Lloyd’s coffee shop has become a popular place for shipping merchants to meet and share information about emerging trade links, upcoming weather events, pirate activity and the price of commodities making their way around the world.
Lloyd, who himself benefits from making sure his supply of coffee beans doesn’t dry up, takes advantage of his patrons’ business interests by setting up The Lloyd’s List, a regular publication of shipping news and forecasts. The merchants who frequented Lloyd’s used the sum of this information to insure one another’s ships, with the prices changing rapidly as new information came to light.
In 1871, an Act of Parliament called the Lloyd’s Act gave the entity underwriting abilities – however, the company was, and continues to be run more like a society, where individuals and businesses can collectively underwrite policies.
Victorian life insurance
During the early 1800s, wealthy British people became acutely fascinated with their own mortality, which fueled the rapid growth of the life insurance industry.
The middle classes took their lead, but also sought to use life insurance as a form of security. With the industrial revolution booming in the background, life insurance helped entrepreneurs to take out business loans.
By 1850, there were around 180 insurers providing around £150 million of life insurance in the UK. That number would have been even greater, were it not for the fact many insurance firms went quickly bankrupt – both due to the nature of their business, and a spate of fraud. This encouraged the first government regulation of the insurance sector.
By eliminating the risk of fraud and encouraging a balanced level of risk, regulation helped rather than hindered the British insurance industry. This helped insurance firms to grow into large businesses, which in turn led to the growth of composite insurance policies in the late 1800s.
Up to this point, insurance companies had tended to focus on one type of insurance, but now various policies could be lumped together to form one catch-all policy. Fire and theft, for instance, combined to form ‘home insurance.’
Another major innovation in the history of insurance happened in Switzerland with the birth of Swiss Re in 1861, in the aftermath of the Glarus fire, which highlighted the need for insurance that could cover events with incredibly low risk, but huge potential costs.
Their policy of ‘reinsurance’ (wherein an insurer diversifies the risk of their portfolio by shifting obligations to other companies) allowed Swiss Re to create composite insurance policies that could cover a broad range of possibilities, allowing them to offer everything from marine insurance in 1864, to health insurance in 1881, to motor insurance in 1901. Swiss Re soon became a rival to Lloyd’s of London as one of the major global insurance firms.
The rise of health insurance
While ‘accident’ insurance had been a common form of insurance dating back to ancient times, it was largely limited to covering physical injuries that incapacitated a person, rendering them unable to work. The first modern health insurance was the firm Blue Cross, which came out of Dallas in 1929. Clients could pay a hospital 50 cents per month in return for maternity treatment.
But with the growth of medical technology in the 20th century, and two World Wars creating a generation of people in need of healthcare, it became clear that a new, more comprehensive form of insurance was needed.
In 1948, the British government formed the NHS, which was paid for by a so-called ‘national insurance,’ allowing anyone in Britain to visit a hospital and receive any form of treatment they needed.
Many other countries followed suit by creating a nationalised healthcare system, while some – such as the USA – opted instead to create a competitive health insurance sector by tying health insurance to company income, incentivising people towards jobs by allowing them to receive health insurance as a bonus.
As we’ve seen, the rules of insurance are underpinned by a few concepts that have remained consistent throughout the ages. Theoretically, anything can be insured, so long as there is a society to take a risk on that asset.
Many people have taken advantage of this flexibility over the years, producing some rather interesting insurance policies throughout history.
1906: ‘Fire following earthquake’ insurance
The San Francisco earthquake of 1906 marked a major turning point in the history of insurance. While the earthquake itself was devastating, it was the fires that followed it that caused around 90% of the total damage.
Many policyholders who had taken out ‘earthquake insurance’ were therefore told they were unable to claim. Lloyd’s of London decided to pay out to their policyholders regardless of whether it was the quake or the fire that caused them loss, and thereafter made sure to include fire damage as a result of an earthquake in all their policies. Other insurers followed their example, recognising that a swift, sympathetic resolution to their client’s issues was ultimately better for their reputations.
1912: The most Titanic scam in history?
‘Unsinkable,’ claimed White Star Lines, the owners of the ship Titanic. But sink she most certainly did, claiming the lives of 1,514 people. Lloyd’s of London had only just previously insured the ship for over £1 million, and despite sinking on her maiden voyage, bringing instant losses to underwriters, the sum of the claim was paid to White Star Lines in 30 days.
Conspiracy theories quickly spread that the Titanic might have actually been her sister ship, Olympic, which had been damaged in an accident the previous year, massively reducing her insurance value. Theorists state that the name badges on both ships were swapped, and that the damaged Olympic was sunk on purpose in order to claim the £1 million.
1928: The birth of body-part insurance
Silent film actor Ben Turpin, who built a career around his cross-eyed appearance, was the first person reported by TIME magazine to have taken out an insurance policy on his own body – the claim would have paid out US$100,000 should his eyes ever have come un-crossed.
Body part insurance has since become a surprisingly common (although often slightly ludicrous) form of insurance: model Heidi Klum has insured her legs for US$2 million; vintner Ilja Gort insured his highly-developed nose for €5 million; and rockstar Bruce Springsteen has insured his voice for £3.5 million.
1971: Loch Ness Monster insurance
In a 1971 marketing stunt, Scotch whisky company Cutty Sark offered a £1 million bounty to anyone who could find the mythical Loch Ness Monster. However, when the competition became a bigger sensation than they’d imagined, they started to grow anxious.
Lloyd’s of London agreed to underwrite the competition, but only after being talked into it (they initially claimed it was “too risky”), and also on the condition that, if Nessie was found, their underwriters would get to keep the beast.
2002: Falling coconut insurance
It’s claimed that around 150 people every year are killed by falling coconuts, with up to 2.5% of all hospital admissions in Papua New Guinea coming as a result of coconut-related incidents. Taking this into account, UK travel insurer Club Direct added ‘coconut-related injuries’ to their policies in 2002.
By tracing the history of insurance back through the aeons, we see that all the innovations we take for granted today sprung from very real needs in the past.
Insurance still operates on many of the same fundamentals that it started from – offering people peace of mind that their lives and assets will be safe, in spite of any worst-case scenario. In the modern world, we have the opportunity to insure almost anything including, apparently, our own legs.
The cost of insurance may seem daunting to many of us, especially when we add up all the various insurance policies that dictate our lives – home insurance, car insurance, life insurance, health insurance and so on. But there is a good reason to take out these policies: they always have, and still do keep us safe and healthy, helping us to avoid the risk of losing our lives and livelihoods in a single moment.
With more and more threats to our safety and wellbeing arising every year, you can be sure that new forms of insurance will continue to develop to meet these changing needs. But with a strong insurance sector to support us, we can continue to meet those challenges head-on.
Take out international health insurance today
At William Russell, we know the value of insurance first-hand. We’ve been providing international health insurance, to expats all over the world for over 30 years. In that time, we’ve helped people seek complex and life-saving treatments – like the time we airlifted Roger to South Africa in 2019 to receive emergency treatment for a stroke.
Our policies offer much more than just basic healthcare. We’ve created a network of over 40,000 of the highest-quality healthcare facilities worldwide, meaning wherever you choose to live or visit, you’ll always have access to the best healthcare available. Better still, we take customer service seriously. We’re proud winners of the 2023 Feefo Platinum Trusted Service Award for our excellence in customer service.
Speak to us today to find out how international health insurance from William Russell could help you make the most of your new life abroad.