How Did the Insurance Industry Get Started, Anyway?

by OnlineInsurance Staff on November 3, 2010

These days, the insurance industry is as high tech and cutting edge as any other industry. Online insurance quotes are just a couple clicks of the mouse away, and you can conduct all of your business without ever coming ace to face with an insurance agent, much less the other people who are insured by the same company.

But the insurance business wasn’t always that way. Insurance has its roots in China, dating way back to the 2nd millennium BC. Chinese merchants often had to transport their goods over dangerous river ways. To ensure that no one lost all of his goods, several merchants would band together and share cargoes, so that each merchant had some cargo on each boat. That way, even if a merchant lost his boat, he would only lose a small percentage of his wares (and everyone else’s).

The Ancient Babylonians were the first ones known to have official written insurance agreements. Ship captains would pay money for a form of pirate insurance, which guaranteed that their shipments would be paid for if they were stolen. Apparently, the Pirates of the Caribbean had nothing on the Pirates of the Mediterranean.

These early agreements laid the philosophical foundation of shared risk which eventually evolved into the insurance industry we have today. Then, as now, the basic concepts of insurance were:

  • Everyone paid a modest fee to protect themselves against loss.
  • If a protected person or company suffered loss, they would recoup their losses from the insurer.

Insurance in a more modern form was born in Genoa, Italy in the 1300s. The insurance still mainly involved insuring merchants and their vessels and cargo, but the dealings were more formalized and written down in contract form.

The Great Fire of London is likely what started the idea of homeowner’s insurance. Following the fire in 1666, companies in London started offering insurance for homes against fire.

As for insurance in the United States, it was none other than the eminent Benjamin Franklin who introduced the concept, forming a mutual benefit society which protected its members against loss by fire. While you couldn’t get online insurance quotes from his Philadelphia Contributorship, you could obtain policies through Mr. Franklin or one of the other society’s members.

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