History of Insurance
The Hand-in-Hand, chartered in 1696, is said to have been the first formal life insurance company in England. The great fire of 1666 in London led to the founding of fire insurance companies. By 1680 a joint-stock fire insurance company, probably the first of its kind in the world, had been founded.
A landmark in life insurance in England was the founding in 1706 of the Amicable Society for a Perpetual Assurance. For the first time, whole life insurance was offered, rather than term insurance, or insurance for limited periods of time. In 1756 a mutual company was formed that offered the equivalent of whole life, level premium insurance. This was the famous Society for the Equitable Assurance of Lives and Survivorships.
The history of insurance goes back almost 5,000 years. In ancient times, Babylonian traders entered into agreements with caravan masters for the safe shipment of their goods to distant markets. The law code of Hammurabi outlines methods whereby ships and cargoes were to be pledged for security against losses they might incur.
A type of insurance existed in China long ago that was similar to risk sharing as it is known today. While the details are difficult to authenticate, it has been said that Chinese families plying the Yangtze River banded together to protect themselves against the loss of their worldly possessions. Four families, for example, each distributed a fourth of their property in the boats of the other three. If one boat sank, each family lost only a quarter of its possessions.
Sharing risks in Phoenician maritime trades was covered in the Rhodian Sea Law, about 900 B.C. One of its provisions stated, "If goods are thrown overboard in order to lighten the ship, what is sacrificed for the common benefit should be made good by a common contribution".
The earliest forms of risk sharing applied to seagoing commerce. As commerce expanded, new kinds of laws covering agreements between shippers and shipmasters developed. A 13th-century law incorporated a reference to life insurance by providing that "if the merchant obliges the master to insure his ship, the merchant shall be obliged to insure the master's life against the hazards of the sea".
The medieval guilds gave their members insurance protection against losses from fire, shipwreck, captivity, and sickness. But, except for burial insurance, which had been in existence in Rome since the 2nd century A.D., life insurance had not yet begun to develop. With the decline of the guilds in the 16th century, friendly, or benefit, societies gave assistance to the widows and orphans of their members.
In the 1600's, shipping men made a practice of gathering in the coffeehouses of London to discuss ship sailings, cargoes, and prices. A shipowner wrote a notice containing the details of his forthcoming trip, including the type of ship, the cargo, and the ports of call. The notice was posted on a blackboard in one or more of the coffeehouses. Anyone wishing to participate in insuring the ship and its cargo would write his name under the posted notice. The term "underwriter", still common in the insurance business, dates back to the coffeehouse transactions. One of the popular gathering places for shipping men was Lloyd's coffeehouse, which evolved later into the famous London insurance company, Lloyd's.
In the latter part of the 17th century a speculative form of annuity developed, called a tontine because it was conceived by Lorenzo Tonti, a Neapolitan banker and physician. Many tontines were established to bring revenue into the coffers of insolvent governments. Tonti's plan was used by Louis XIV of France, among others. A large fund was created from the investments of thousands of subscribers. Each subscriber received an annuity based on the earnings of the capital sum. When subscribers died, their original investment remained in the fund. As earnings were divided annually among fewer and fewer survivors, the last survivors received a bonanza on their original investments. When the last subscriber died, the fund reverted to the government. These plans, although they were called insurance, were really forms of gambling and were ultimately outlawed.
The 17th century also saw the first scientific studies pertaining to risk and insurance. Among the scientists who experimented with figures were Blaise Pascal, the French philosopher and mathematician, and the Englishmen Edmund Halley and Edmund Hoyle. Hoyle, the man referred to in the expression "according to Hoyle", studied games of chance from the standpoint of mathematical probability. Halley, the astronomer for whom Halley's Comet was named, pioneered in the study of birth and death records. His efforts led to the first scientific calculations of life annuities.
Businessmen in the American colonies began the practice of underwriting as a business venture in the early 18th century. Their transactions took place in coffeehouses in Boston and Philadelphia. Because English companies had been given a monopoly in the field of colonial insurance, American underwriters had to function individually at first. Most of the early insurance was on ships and shipping. Policies on lives were issued only for short periods of time to cover specific hazards.
The first American life insurance company, which became known as the Presbyterian Ministers' Fund, was established in 1759. It was designed to care for survivors of Presbyterian ministers. At about the same time the Philadelphia Contributionship was formed as a fire insurance company. The first American company to require a medical examination for insurance was formed in 1809. This was the Pennsylvania Company for Insurance on Lives and Granting Annuities.
The first mutual life insurance company was the New England Mutual Life Insurance Company, chartered in Boston in 1835. Thereafter, the popularity of the mutual company idea began to spread, and a number of life insurance companies that are still doing business were organized. In the decade between 1850 and 1860, life insurance in force increased by 75 percent in the United States.
By the end of the 19th century, insurance policies contained many of the features that today's policy-holder has come to expect. In 1905, when the Armstrong Commission was created by the New York State legislature to investigate life insurance companies in that state, the companies were brought for the first time under state regulation.