I was talking to my insurance agent for renewing my car insurance. This is when my 10 year old kid asked, “Dad, what is insurance and why do we need it?” After my call, I explained to him that this is to cover risk in case, any unforeseen event occurs. Again, my kiddo asked out of curiosity as usual that who started it? This is when I started scratching my almost bald head. I immediately googled it & learned how it started & why it started and explained to my son. What I learned was bit surprising for me as well.
Insurance dates back as long as society exists. The earliest form of insurance occurred in 3rd millennium BC when wealthy Chinese traders decided that it is too risky to transfer all goods in one vessel while transporting goods along the Yangtze River. & hence they decided to split the shipment into small portions in several boats. They knew that if one vessel drowns then also majority of their goods will reach the destination in good shape. In ancient times, the first written insurance policy was noticed in a Babylonian era almost 2000 years BC & was documented as “Hammurabi Code”. They developed a system whereby if a merchant took a loan for his shipment, by paying extra amount, lender would agree to cancel the loan if shipment is stolen or lost at sea.
Around 600 AD, the Greeks and Romans introduced the origins of health & life insurance to us. Although this was formally not called insurance but it was forerunner of modern insurance company.
It is only in 17th century that more formal insurance agreements started taking place. This began at Edward Lloyd’s coffeehouse in England. The wealthy traders & merchants gathered here to discuss their new ventures, which included shipping overseas shipments. They were concerned that if an entire shipment was lost, they would be financially devastated & hence started making arrangements with each other to share the loss. Whenever vessel was fully loaded, ship owner used to post description of cargo & vessel at coffee house. Merchants used to look at the description & signed with an assurance that if vessel was lost at sea, they would pay a certain percentage of the cargo. When cargo was insured 100 percentages, the ship used to sail. If vessel reached the destination, all merchants who had signed used to receive a bonus or premiums. However, if vessel did not reach the destination, the merchants made good the loss to the shipper.
The origins of Property insurance can be traced back to Great fire of London in 1966, which engulfed 13,000+ homes & destroyed home of 90% of population. Not surprisingly, this fire shifted focus on idea of insuring against fire as matter of urgency rather than convenience.
The first life insurance policies were offered in early 18th century, whereas accident insurance became prevalent only in late 19th century. In late 19th century insurance became practice. Farmers wanted to insure their crop & travelers wanted to insure their travel. Everybody wanted to buy peace of mind.
My kid felt enlightened when I explained all of above to him but not sure how much he understood but definitely I felt educated at the end of day.