The insurance industry is constantly undergoing changes among its various sectors. But these continuous changes are nothing new. Insurance has been adapting and adjusting since it first got its start and will likely continue in the centuries to come.
The Beginning: Chinese Ancient Tort Law, the Code of Hammurabi and Community Insurance
There were no automobiles or houses as we now know them until recent centuries, but as far back as 3000 B.C., there was a need for property and personal injury protection. It came in the form of tort law.
Ancient tort law found in 3000 B.C.
Records of the concept of insurance have been found as far back as 3000 B.C. as ancient Chinese merchants sought protection for their boats. Their solution was a variation of tort law.
Ancient Chinese merchants
Torts are defined as the wrongs involving damage to a protected interest. They occur when a person deliberately, or by means of negligence, harms another person or group. Ancient Chinese tort laws fell right in line with these principles and helped define insurance today.
Insurance found in the Code of Hammurabi.
By 2100 B.C., during Babylonian times, the Code of Hammurabi became the equivalent of the modern day basic insurance policy. Similar to ancient Chinese tort law, the code provided a guarantee against loss.
Traders knew transporting their goods by caravan left them in danger of robbery, bad weather and breakdowns. To combat the possibility of something going wrong, traders purchased policies that came in the form of loans. These policies guaranteed their goods’ safe arrival.
Guilds served as insurance to cover families of the deceased.
Around 600 B.C., guilds known as “benevolent societies” were created in Ancient Rome. Similar to both the ideas of health and life insurance, guilds served the purpose of making sure individuals and families were taken care of.
The Talmud also dealt with several aspects of insuring goods. In this sense, people donated amounts of money to a general sum that could later be used for emergencies. They provided forms of member insurance covering risks like fire, theft, flood, disability, death and even imprisonment.
Persian Empire creates personal insurance.
By 6th century B.C., the Achaemenid Empire found value in insuring its people through a registration process completed by the governmental notary offices.
Acquring insurance was actually a tradition that was performed each year at Nowruz (the beginning of the Iranian New Year). During this time the heads of different ethnic groups—and others requesting to take part—presented gifts to the monarch.
Achaemenid Nowruz celebration
Gifts presented in the ceremony were assessed by confidants of the court. If gifts were greater than 10,000 Derrik (the Achaemenian gold coin), they were registered in a special office and then assessed. Gifts that were registered acted as a sort of insurance policy so that if the person who supplied the gift was in trouble, the monarch and the court would help them.
A gift provider could also cash in their insurance if they wanted to construct a building, set up a feast, have his children married, etc. When the gift provider made his request, the court would check his registration and if he registered for more than 10,000 Derrik, he would receive an amount twice as much.
Ancient Rome’s burial clubs similar to life insurance.
In later centuries, guilds in Ancient Rome faded away and were replaced with burial clubs. These clubs, also known as benevolent societies, were formed around Rome to help people pay for funerals.
The club members were said to have met once a month and during festivals. They were expected to pay their membership fees during their meetings. New members who wanted to join the clubs were expected to pay an entrance fee and also supply the group with wine.
Ancient Roman funeral
Similar to current day insurance, if a member had not paid their dues for six months, they were not allowed to claim burial benefits. And if a member committed suicide, their burial would not be paid for.
Insurance During the Middle Ages
With Rome’s fall around 450 A.D., many concepts of insurance were completely abandoned. However, it did continue sparingly through the Middle Ages of European history, which lasted from the 5th century to the 15th century.
The first insurance contract is written.
There were gaps in the progress of insurance during the Middle Ages. But toward the end, in 1347, the first insurance contract was signed in Genoa, Italy.
During those times, policies were signed by individuals, either alone or in a group. Similar to today’s contracts, policyholders wrote their name and the amount of risk they were willing to assume under the insurance proposal.
Marine insurance provided through loans.
By 4th century B.C., Athenians had come up with the “maritime loan,” which was a money advancement given to those taking voyages.
This process was advanced during the Middle Ages. The loan was slightly different than other forms of insurance because while it didn’t pay for a boat or goods if they were lost, repayment for the loan that was received to make the voyage would be cancelled if the ship was lost.
Roman sail ship from Middle Ages
The rates for these loans differed depending on the time of year requested. Safe or dangerous times of year could make the rates fluctuate, implying a level of risk used in a similar fashion to modern day insurance.
Notable insurance terminology emerges.
It’s good to note that certain insurance terminology was derived during this time. For instance, the term “underwriter” is Italian and from an old system of signing contracts on marine insurance.
Businessmen agreed to share profits or losses on a certain venture by signing their names underneath the contract—writing at the same time the amount of risk assumed by each.
Some say that the term “policy” is also of Italian origin and is derived from the word “promise.”
Insurance Companies Form in England
After the Middle Ages, the concept of insurance began to that take flight, gaining a lot of it’s grounding in England.
First term life policy issued in England.
According to the book Insurance Theory and Practice, written by Pal Prabir, Tripathy and Nalini Prava, life assurance is a theory that developed in England as early as the year 1583 when the first term life policy was issued that covered a period of 12 months.
This was the first introduction to a scientific method for looking at insurance, as well. However, it didn’t develop for over a century when the mortality table was introduced.
Need for fire insurance derived from Great Fire of London.
Toward the middle of the 17th century, a different type of insurance became of great need. As a result of the Great Fire of London in 1666 and primitive fire-fighting methods of the day, flames roared through narrow streets and reduced buildings to ashes.
Great Fire of London in 1666
To help pay for damages associated with future fires, a man named Nicholas Barbon promptly opened an office “to insure buildings.” In 1680, he founded a partnership and established England’s first fire insurance company, The Fire Office, to insure brick and frame houses.
By 1696, the first mutual fire insurance company was established as “Contributorship for Insuring Houses, Chambers, or Rooms from Loss by Fire by Amicable Contributions.”
First modern insurance company formed.
By the late 17th century, the practice of insuring cargo became commonplace throughout the maritime nations of Europe. To accommodate this practice, Lloyd’s Coffee House was formed.
This business was a place where merchants, ship owners and underwriters met to make business transactions. Eventually, Lloyd’s grew into one of the first modern insurance companies, known as Lloyd’s of London.
Edmond Halley creates basis for underwriting life insurance.
In 1693, the astronomer Edmond Halley developed the first mortality table, which created the basis for underwriting life insurance. The table combined statistical laws of mortality and the principle of compound interest.
Edmond Halley
However, there was a problem with the table. It used the same rate for all ages, which meant there would be no deviation in risk when deciding whether a company should insure a person. This error took over 50 years to correct. In 1756, Joseph Dodson made the adjustment by scaling the premium rate to age.
18th and 19th Centuries: The Need for Insurance Grows in Europe and America
During the 18th and 19th centuries, the need for insurance of all types began to expand throughout Europe and across the seas to America. As a result, numerous types of companies emerged.
Several insurance companies emerged; gambling becomes associated with life insurance.
While The Fire House got its start in 1680 by insuring brick and frame houses, the Lombard House inaugurated fire insurance for household and business goods in 1704. And in 1762, the first mutual life insurance company was formed as The Equitable Life Assurance Society.
In the same timeframe, one aspect of the life insurance industry became popular—gambling on people’s lives. Because anyone could purchase insurance on another person at the time, England’s middle class sought gambling as a way to a quick means.
They took the practice so seriously that they looked in newspapers for published names of prominent people who were seriously ill then placed bets at Lloyd’s on their anticipated dates of death.
The New Lloyd’s Coffee House
Some underwriters were highly uncomfortable with the practice and decided breaking away from their establishments was best. In 1771, an estimated 79 merchant underwriters formed a “New Lloyd’s Coffee House” that became known as the “real Lloyd’s.”
Also, it’s important to note that making wagers on people’s deaths ceased when parliament forbade the practice with the Life Assurance Act of 1774.
Insurance moves to the United States; first home insurance policy written.
In the earlier part of the 18th century, the British model of insurance made its way to the United States. And in 1735, Charleston, S.C. saw the birth of the first insurance company in the American colonies.
In 1751, Benjamin Franklin, created what would be known as the first legitimate home insurance policy. The policy was developed in response to the destruction and devastation of home fires. To get the insurance going, the Union Fire Company united with Franklin and other firefighting companies in order to form a fire indemnification company.
The result was the Deed of Settlement that was signed by 73 subscribers to form “The Philadelphia Contributionship for the Insuring of Houses from loss by Fire and to be and continue to be Contributors unto and equal Sharers in the losses as well as the gains.”
From that company, 134 policies were written but no claims were filed until the following year. When the claim finally was filed, a third of the company’s assets were lost.
More insurance companies emerge.
On May 22, 1761, the first life insurance policy for the general public in the United States was issued in Philadelphia. This was followed by the first fire insurance companies formed in New York City and Philadelphia in 1787 and 1794, respectfully.
By that time, insurance companies were quickly emerging in the United States, but even more would sprout up in the coming years.
Reinsurance emerges from insurance companies’ need to prepare for losses.
By the early 18oo’s, people became accustomed to the idea of paying to protect themselves and their loved ones in case of loss. But it wasn’t until the Great Fire of New York in 1835 that people understood the gravity of loss from fire without coverage.
The losses were unexpectedly high and most people had no money set aside to pay for the damage. As a result, Massachusetts led the states in 1837 by passing a law requiring insurance companies to maintain reserves.
Great Fire of New York in 1835
The Great Fire of Chicago in 1871 reiterated the need for reserves, encouraging more states to prepare for losses.
Because the funds were not readily available by one insurance company, many had to work together to find a solution to the challenge of large losses. The solution was a system known as reinsurance, where losses were distributed among many companies.
Accident insurance becomes available during Civil War.
The first of what would later be known as health insurance emerged in the United States during the Civil War. At the time, it was known as accident insurance, which provided coverage for injuries that occurred during travel on railroads or steamboats.
In 1847, Massachusetts Health Insurance of Boston provided early group policies with a list of benefits. This individual accident insurance was so successful that more expansive programs emerged that covered a broader range of illness and injury. This included early versions of disability coverage.
Fraternal orders insure members; Workmen’s Compensation Act signed.
During the same period, societies began to form with a primary purpose of insuring the life and health of their members. Known as fraternal orders, they offered low-cost insurance strictly for members.
Like fraternal orders, major companies found reasons to become more organized in terms of insurance. Some found that as industries emerged and workers took part in more dangerous actions, they needed to be insured.
In Britain, the Workmen’s Compensation Act of 1897 was signed to require employers to insure their employees against industrial mishaps. The United States later followed suit and fostered public liability insurance.
Auto Insurance Becomes a Necessity
By the end of the 19th century, automobiles were slowly making their way into the world so that by the turn of the 20th century, the need for auto insurance emerged.
First auto insurance policy sold.
By 1897, the United States was ready to begin insuring automobiles on the road. This occurred with the first auto insurance policy sold in Dayton, Ohio.
Vehicle from 19th century
The policy was sold to Gilbert J. Loomis as a liability insurance policy from Travelers Insurance Company for $1,000. For his money, Loomis was protected if his car killed or injured someone or damaged their property.
First auto insurance company established.
Adolph T. Vigneron is known for opening a small car insurance company in 1907 known as Automobile Mutual Insurance Company of America (now Amica). He opened the company in Providence, R.I. with the belief that the automobile would be the wave of the future.
The company is the nation’s oldest mutual insurer of automobiles and operates 39 offices across the United States.
Mandatory auto insurance law passes.
We are now accustomed to most states requiring auto insurance. In fact, New Hampshire is the only state that does not require some sort of liability coverage. But in the early 20th century, auto insurance was still a new concept and had no laws to govern it until Massachusetts made some changes.
In 1927, in response to massive growth of the auto industry—along with increasing accidents on the road—the first mandatory car insurance law went into effect in Massachusetts.
Known as the Compulsory Liability Insurance Statute, all parties would now have to be financially responsible for their vehicles in the state.
Non-standard coverage makes its mark through Progressive Insurance.
By 1937, Progressive Insurance had opened its doors and in with it came a new way of looking at car insurance coverage.
Instead of simply offering the standard policy other insurers were known for, the company tried to fill in a gap by writing non-standard auto insurance, which covered drivers that other companies refused to insure.
The Evolution of Modern-Day Insurance
In the four major insurance markets, life, health, home and auto, many evolutions occurred to bring them to what we know now as modern-day insurance coverage.
Life insurance
As we have seen over time, life insurance has taken many forms since initial burial insurance developed in Ancient Rome. Here are some major adjustments that have taken place.
The development of group insurance. In 1911, the Equitable Life Assurance Society wrote a policy that covered the 125 employees of the Pantasote Leather Company.
The policy didn’t require individual applications or medical examinations. The next year, the Equitable organized a group department to promote the new product and by 1919, 29 companies wrote group life insurance policies.
Servicemen’s Indemnity and Insurance Acts of 1951. The acts provided for the payment of an indemnity of $10,000 if a person in active service with the Armed Forces dies.
Types of life insurance coverage emerge. During the 20th century, a number of life insurance types emerged and expanded, including term, whole life, universal life and variable life.
Riders become common additions to life policies. Life insurance riders are adjustments or modifications made to life insurance policies—added at the time the policy is issued—to provide a feature desired by a policyholder. Some riders that have been featured over the years include accidental death and premium waivers.
Health insurance
In the world of health insurance, several advancements have occurred as well.
The term “sickness insurance” slowly switches to “health insurance.” The Progressive Era was a time in the United States when debates began about the role the government should play in health care. During this time, the term “sickness insurance” was used to describe supplementary income provided to the ill, similar to modern-day disability insurance.
However, when the British passed their National Insurance Act in 1911, the term “health insurance” fell into favor in the United States.
Medical care gets institutionalized, adjusting the need for insurance. In the first quarter of the 20th century, most health care was administered in the home, leaving little need for health insurance. At this time, even surgeries were conducted in the homes. But by 1920s, a switch was made so that medical practitioners began to institutionalize care and technology became legitimized by the profession.
Family doctor visits home
The American Medical Association (AMA) began creating licensing standards for medical training and by the late 1920s, the need for health insurance developed.
Dallas teachers initiate first health insurance exchange. While most people were still in favor of sickness insurance by the late 1920s, it was in 1929 that a group of Dallas-based teachers formed a partnership with an area hospital to exchange a fixed, prepaid fee for a set amount of sickness and hospitalization days.
These types of exchanges increased during the Depression, influencing the American Hospital Association (AHA) to encourage hospitals to develop similar plans.
Physicians organize their own plans. In order to maintain some level of autonomy while being able to develop a closer relationship with patients, physicians began organizing their own prepaid plans, which in turn resulted in what we know as HMO, PPOs and POS plans.
Medicare and Medicaid are established. In 1965, Congress enacted Medicare and Medicaid. Medicare provides compulsory hospital insurance and subsidized medical insurance for people over 65 and Medicaid provides care for low-income people. Both programs have expanded over the years to accommodate more individuals who are in need of care.
Modern health care reform. While other provisions have been added to modern health care and insurance, including the Health Insurance Portability and Accountability Act (HIPAA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA), lawmakers determine that additional adjustments needed to be made. As a result, the Patient Protection and Affordable Care Act was signed into law on March 23, 2010.
President Barack Obama signs health care reform into law
The law sought to make a number of changes to the current state of health care and insurance in the United States, including Medicaid expansion, children remaining on parents’ policies until the age of 26, eliminating lifetime limits on coverage, prohibiting companies from deny coverage for pre-existing conditions and requiring the all citizens purchase coverage or face penalties.
From the time the act was signed into law, some lawmakers fought it in hopes of having it repealed. As of 2011, the disputes continued with some judges calling the law unconstitutional and some showing their support.
Home insurance
Homeowners insurance hasn’t evolved as rapidly as health, but it has still seen some major changes over the years.
U.S. homeowners insurance introduced in 1950. While there was evidence of insurance the resembled homeowners coverage in previous centuries, it wasn’t officially introduced in the United States until Sept. 15, 1950. Prior to this, separate policies were used to cover incidents like lightning strikes, theft, earthquakes, fires and other issues.
When the first policy was written, it attempted to consolidate the ideas by allowing a person to cover these issues under one policy. However, issues on how to handle this type of coverage continued to arise.
National Flood Insurance Act signed. One issue that arose in respect to homeowners insurance was how floods would be handled. The solution was the passage of the National Flood Insurance Act in 1968.
The act served as a foundation for the National Flood Insurance Program (NFIP) and helped to provide a way to reduce the escalating costs associated with flood damage, which were among few natural disasters not covered under a homeowners insurance policy.
The NFIP has come under scrutiny in recent years for its lack of organization and archaic flood maps to determine who is required to purchase flood coverage. As a result, the program is expected to be revamped by 2015.
Home insurance policies standardized. By the 1970s, significant changes had been made to home insurance policies, yet they had not been standardized, so in 1971, a New Jersey company came together to create what is now known as the Insurance Service Office (ISO). It provides risk information and ensures homeowners policies are simplified enough to be sold to the public.
ISO building in Jersey City, New Jersey
Currently, the ISO has seven forms used for standardized homeowners insurance. With the forms, listed from H01 to H08 (Ho7 is not used), companies can now provide standardized coverage for everything from the basic single-family home to the person living in a condominium or renting property.
Auto insurance
A number of changes in the auto insurance industry have continued to occur as well.
Federal auto insurance bill attempted. In 1966, Senator Thomas Dodd (D-Conn.) made his attempt to create a federal guaranty system that would serve as a way to protect auto policyholders and claimants in a similar way that the FDIC protects bank depositors.
While his proposal was seriously considered, it was ultimately shot down by lawmakers who felt it was an intrusion of state regulatory authority.
No-fault insurance spreads to numerous states. By the 1970s, no-fault auto insurance had begun to emerge. Though it got its official start in 1930, it wasn’t until decades later that states saw the need to veer from the traditional tort-based idea of liability insurance where some must have some level of financial responsibility.
No-fault insurance was different in that it required individuals injured in accidents to be limited in their ability to seek recovery from other drivers. In the 70s, 24 states operated under the law; however, now only 12 states use it.
Progressive Insurance offers first online policy. Progressive Insurance made another major advancement in auto insurance in 1995 when it became the first major auto insurance group to launch a website. In 1997, it became the first company to sell coverage via its website.
The need for financial assistance in the event of illness, death, or destruction of property has forever been apparent, which is why some form of insurance has always been present. Insurance has undoubtedly developed and advanced over the centuries, but with state and national governments still seeking changes to specific aspects of it, we’re bound to see it continue to evolve in the decades to come.
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