What is the History of Property Insurance?

A SUMMARY OF PRIVATE INSURANCE'S HISTORY

Because the historical growth of insurance as a field of business helps to understand the distinction among the many lines of insurance, a glance at the chronological history of insurance as an institution may be beneficial.

Antiquity's Insurance

In the ancient world, there was evidence of procedures that were similar to insurance. Chinese traders utilized the risk-sharing strategy as early as 3000 B.C. These merchants conveyed their wares downriver by boat, and not all boats reached it safely due to hazardous rapids. The merchants created a scheme to divide their goods on each other's ships to limit the impact of losses on any individual. When a boat is smashed to bits on the rocks, the loss is shared by everyone, not just one person.

The legendary Great Code of Hammurabi, written around 500 years later, permitted risk transfer from merchants to moneylenders. A trader whose goods were stolen by robbers was forgiven his debt to the moneylender who had provided the funds to purchase the goods. To compensate for this risk transfer, Babylonian money lenders increased their interest rates. The Phoenicians and eventually the Greeks applied this innovation to the risks of sea trade. Shipowners and merchants who were in business were given loans using the ship or cargo as security. The borrower was given the option of having the loan canceled in exchange for a slightly higher interest rate if the vessel or cargo was lost at sea. 2 The risk of loss was passed from the boat owner or load to the lender in this manner. When the ship was pledged, these contracts were referred to as bottomry contracts, and when the cargo was the security, they were referred to as respondentia contracts.

Ancient benevolent organizations, whose members contributed to a fund to benefit less fortunate members of the community, provided the first evidence of anything approximating life insurance. Egyptian stonemasons formed a club to raise funds for their members' burials as early as 2500 B.C. Later, about the third century B.C., Greek burial organizations were commonplace, with members contributing to cover burial costs and the needs of widows and orphans. The Collegia, or Roman tomb and benevolent organizations, served a similar purpose. Although these examples show certain aspects of insurance, the modern insurance industry has its roots in the European commercial upheaval that followed the Crusades.