Insurance in History

This item was provided courtesy of the Insurance Education Foundation.

As group endeavors became more sophisticated through time, so did insurance methods. Great events and minds contributed to the growth of this socioeconomic institution over the centuries.

3000 B.C., China:

The Chinese are credited with the first practical application of the insurance principle. They set up a system to minimize loss of goods when boats navigated the dangerous Yangtze River. Cargo was divided equally among 100 boats to that the loss of one boat meant the loss of just one percent of a shipper's goods. The Chinese had discovered a fundamental of insurance: accept a small, known loss (today it's called a premium) to avoid the danger of a large, unknown loss (a major claim).

12th Century, Italy:

Technically, modern insurance began in Italy in the 12th Century when groups of people provided protection against the risks of travel on the seas. They signed their names at the bottom of an insurance contract and were called "underwriters." Today such a contract is called a policy, from the Italian word "polizza," meaning "promise."

15th Century, London:

The practice of underwriting was refined in London in the 15th Century, where shipowners and underwriters met to reach agreements on ship insurance. They often met in coffeehouses, such as one called Lloyd's, that became the insurance organization we know today as Lloyd's of London.

Great fire of 1666, London:

The Great Fire of London in 1666 had a major impact on the development of insurance. By destroying 85 percent of the city's buildings and financially ruining most of its citizens, it tragically emphasized the need for protection from loss by fire. 

Late 1700's, USA:

Inventor and statesman Ben Franklin played an important role in the development of insurance. His Philadelphia contributorship of Houses from Loss by Fire, formed in 1757 is still in existence today and is a member of the Urban Insurance Partners Institute.

20th Century, USA:

Congress passed the Social Security Act during Franklin D. Roosevelt's administration. Prompted by the economic misfortune of the public during the Great Depression, the government began providing citizens with this "social insurance" -- beginning with cash benefits to retired workers. More programs were added during the next 30 years providing survivor payments, disability payments, unemployment benefits, workers' compensation and Medicare.

Particularly in the last two centuries, inventions with mass impact, such as the automobile and nuclear devices, have spurred the creation of new categories of insurance to cover losses incurred through their use or misuse. Events such as the Chicago Fire of 1871 and the AIDS epidemic have caused great upheaval in the insurance industry. Also, the nation's tendency towards increased litigation has led to such specialized insurance as malpractice insurance.