History of Insurance

Summary

The video traces the history of insurance, starting from ancient Babylon where merchants pooled resources to protect against losses during travel. As sea trade grew, early forms of marine insurance emerged. By the 13th century, old-age pensions took root in Europe, while fire insurance followed the Great Fire of London in 1666. The development of probability analysis and mortality tables in the 18th century revolutionized premium calculations. The Industrial Revolution heightened the demand for insurance, leading to new coverage options for machinery and factories. Today, insurance protects everything from celebrity assets to satellites, evolving with a changing world.

Takeaways

• 🌍 Merchants in ancient Babylon formed risk communities around 2000 B.C. to protect against robberies during long travels.
• 🤝 Early insurance involved sharing losses among merchants during joint caravan trips, creating the foundation of modern insurance.
• 🌊 Sea trade and its risks led to a form of maritime insurance, where investors received a share of profits or lost their investment in shipwrecks.
• 🏛 An early version of pensions emerged in 13th-century Europe, where people exchanged money or property for lifelong annuities.
• ☕ London merchants and mariners met in coffeehouses, like Edward Lloyd's in 1688, to discuss and transact shipping insurance, leading to Lloyd's of London.
• 🔥 Fire insurance demand surged after the 1666 Great Fire of London, though insurers initially faced technical challenges in premium calculation.
• 📊 The use of mortality tables and probability analysis in 1763 marked the start of modern premium calculation methods, making insurance more reliable.
• 🏙 The Industrial Revolution increased the need for insurance, as urban migration and industrialization made people rely less on traditional risk communities.
• 🏭 In early industrialization, only buildings were insured, but new forms of insurance eventually covered factories and corporate assets.
• 🚀 Modern insurance covers a wide range of risks, from celebrity body parts to satellites, and continues to evolve with societal and technological changes.

Q & A

What prompted Babylonian merchants to form caravans and risk-sharing arrangements?

Babylonian merchants faced repeated attacks by robbers during their long travels through inhospitable regions. To protect themselves, they formed larger caravans and eventually established risk-sharing practices where losses incurred by one merchant would be shared among the others.

How did sea trade influence the development of early insurance practices?

As sea trade became more important, seafaring nations faced the risks posed by nature. A form of insurance emerged where a wealthy citizen would buy a stake in a ship and its cargo, sharing in the profits if the voyage was successful. If the ship was wrecked, however, the investor would lose all their money, representing an early form of insurance for maritime trade.

What was the early form of old-age insurance that arose in Europe in the 13th century?

In 13th century Europe, an early form of old-age insurance emerged where citizens would hand over money or property to an abbey or nobleman in exchange for a lifelong annuity, providing financial support in their old age.

How did Lloyd’s of London begin, and what role did it play in the insurance industry?

Lloyd’s of London began as a coffeehouse opened by Edward Lloyd in 1688. It became a meeting place for mariners and merchants to discuss business and arrange shipping insurance. Over time, Lloyd’s evolved into one of the world’s leading insurance firms.

How did the Great Fire of London in 1666 affect the demand for fire insurance?

The Great Fire of London in 1666, which destroyed four-fifths of the city center, significantly increased the demand for fire insurance. However, insurers at the time faced technical and mathematical challenges in setting appropriate premiums.

What major advancement in premium calculation occurred in 1763?

In 1763, modern premium calculation methods were introduced, using mortality tables and probability analysis to determine fair and realistic premiums, marking a significant advancement in the insurance industry.

How did the Industrial Revolution impact the insurance industry?

The Industrial Revolution led to increased urbanization, with people moving from rural areas to cities for work. This created a demand for professional protection through insurance, as traditional risk-sharing communities were no longer viable. Additionally, industrialization introduced expensive machinery and large warehouses, prompting the development of new forms of insurance to cover these assets.

What limitations did early insurance companies face regarding industrial assets?

In the early days of the Industrial Revolution, insurance companies could only insure buildings, which meant that machinery and other business assets were often left uninsured, leading to significant financial losses in the event of accidents.

How has the complexity of the modern insurance industry evolved?

The modern insurance industry has become highly complex, covering a wide range of risks, from insuring celebrity body parts (e.g., Heidi Klum’s legs) to safeguarding satellites, reflecting the diverse and changing nature of the risks in today's world.

What factors are shaping the future of the insurance industry?

The future of the insurance industry is being shaped by several factors, including climate change, demographic shifts, and the increasing complexity of global business. These challenges require insurance companies to adapt and innovate to continue providing relevant services.