The History of Insurance - Part One

A Brief Introduction...

Have you ever wondered where the proverbial “it” comes from?

The “it” of whatever it is you are thinking about. 

We have. 

We love finding out facts and pieces of information on subjects we are passionate about. 

We love learning about the history of things. Especially those things close to our hearts.

As a legal practice that specialises in Insurance Law, we have been eager to find out where insurance originated from. What is its history? 

There are so many legends mingled with facts it’s hard to know what is true and what is fiction.

So, we thought we would undertake a little research and discover, for ourselves, what’s what – at least in the world of insurance.

We hope you will join us on this quest and enjoy finding out more about insurance as much as we will…

Without further ado…. 

What is Insurance and how much is it worth?

Statista describes Insurance as – 

“financial protection to individuals and companies against various kinds of loss or damage. Providers evaluate the risks of insuring someone or something and issue clients with a policy based on their assessment. The policy is a legal contract between the insurance provider and the policyholder. Average insurance penetration worldwide was around 7.2 percent in 2019.”

And whilst a good definition, it doesn’t really explain where Insurance originated from.

What we do know at the outset is this - insurance is a huge market with different players in varying areas all required to comply with International Financial Reporting Standards (IFRS). It’s complicated. But also, extremely interesting.

It is also a market that waxes and wanes according to economic stability – if a household has more dispensable income, they are more likely to have insurance policies in place than a household that does not. 

But, one thing is certain, insurance – whether it be household, life, or health – is crucial when trying to adequately protect “life and limb”.

As an example of the reach of insurance and according to Moonstone“60% of South Africans report having an insurance product, and insurance penetration, measured using premiums as a percentage of GDP, was 13.7% in 2020 – one of the highest in the world, out-ranking the US and the UK, according to the FSCA’s 2022 Financial Sector Outlook Study.”

In a country where there are large gaps in income, those are still impressive numbers.

The Insurance sector is also worth a lot of money.

According to PR Newswire - 

“The Global General Insurance Market Revenue is about USD 7000 Billion in 2022 and will reach USD 8500 Billion in 2028, a CAGR of about 3.3%.”

In South Africa (and according to a report by Deloitte) –

“The aggregated equity for the insurance groups increased by R7.6 billion, or 3.1%. The increase equity following aggregated profit after tax of R23.9 billion (2020: loss: R4.7 billion) reported by the insurance groups less the ordinary dividends paid of R21.1 billion (2020: R12.7 billion). On an aggregated basis the insurance groups reported profit before tax of R42.3 billion which is a substantial improvement on the R2.0 billion profit reported in 2020 (restated).”

We are sure you will agree that those are rather notable figures.

So much so that we are of the opinion that an industry that is so big and worth millions (locally as well as globally), it is incumbent on us to look at where it all started. Wouldn’t you agree?

Therefore, as Julie Andrews would say “Let’s Start at the Very Beginning, a Very Good Place to Start” (We know. It’s not exactly the “coolest” reference but it fits this article’s purpose perfectly).

Where did Insurance come from?

Insurance – ostensibly – comes from risk.

And risk (in its most basic form) has been around since time memorial.

Take hunting as an example. Tribe members would hunt in a group in order to spread the risk that hunting presented i.e. being gauged by an antler of a buck they were hunting. If there was more than one person in the hunting party, and one member of that hunting party was unfortunate enough to get gauged, the remaining hunters could still take food home to the rest of the village.

Or transporting cargo (of whatever kind) as another example. Often tradesman would split their cargo amongst different ships or caravans due to the risk of cargo being usurped by bandits or thieves on their routes or when crossing treacherous waters (aka Pirates).

As human beings we have always been wary of risk. Always aware of it. And as a result, have always, in one way or another, done what we can to try and mitigate it. Or avoid it altogether #riskadverse.

And this is where the concept of insurance comes from. Broadly speaking.

But the origination of actual insurance? That takes us on a journey pretty far back in time.

It has been said that the earliest form of “Insurance Contract” dates as far back as Ancient Babylonian times. Specifically on a Babylonian monument with the code of King Hammurabi carved into it. Hammurabi's Code was one of the first examples of written laws.

According to Risk Engineering –

“The Code of Hammurabi is a Babylonian law code dated from around 1750 BC. It consists of 282 laws dealing with all aspect of public life, citizen’s rights and obligations and the Babylonian kingdom’s justice system. The laws were inscribed on a stone stele in honor of the king Hammurabi and on a number of clay tablets.

Some laws in the Code of Hammurabi specify the professional responsibilities of builders / engineers:

If an engineer/builder builds a house for someone and does not construct it properly and the house falls in and kills its owner, then that engineer shall be put to death.

If the house ruins goods, he shall make compensation for them, and shall re-erect the house at his own expense.

These laws that ensure decision-makers have “skin in the game” have been called the “best risk-management rule ever”.

Some laws cover the risks of extreme events affecting a financial loan:

A borrower is not required to repay a loan if some disaster impairs his ability to repay. Types of events covered include flooding, inability to work and death.

Some laws cover risks related to a form of maritime insurance:

If a merchant receives a loan to fund his shipment, he would pay the lender some money in compensation for the lender providing a guarantee that he would cancel the loan if the shipment sank or was stolen.”

These laws dealing, at least in part with insurance, date as far back as 1750 BC.

Who knew insurance was that old?

Britannica explains a further portion of this ancient Babylonian form of Insurance by means of a bottomry contract.

A bottomry contract is defined as –

“a maritime contract (now almost obsolete) by which the owner of a ship borrows money for equipping or repairing the vessel and, for a definite term, pledges the ship as security—it being stipulated that if the ship be lost in the specified voyage or period, by any of the perils enumerated, the lender shall lose his money. The interest on the loan covered the insurance risk. A similar contract creating a security interest in the cargo is called a respondentia.”

Britannica goes on further to explain that -

“So-called bottomry contracts were known to merchants of Babylon as early as 4000–3000 BCE. Bottomry was also practiced by the Hindus in 600 BCE and was well understood in ancient Greece as early as the 4th century BCE. Ancient Roman law recognized the bottomry contract in which an article of agreement was drawn up and funds were deposited with a money changer.”

It would seem – taking the above into account – that it’s within Maritime excursions that Insurance really found its feet.

Followed closely by Fire Insurance and Life Insurance (although technically Life can also be traced as far back as 600–100 BCE in ancient Greece and Rome).

That’s a long history on Insurance. In general, anyway.

And this article is only the very beginning of a long history of insurance. 

It’s hard to imagine the concept of insurance dating as far back as the Ancient Babylonians, Romans, and Greeks. And yet, it did.

That’s an amazing realisation. 

As an aside, the legal profession itself (often thought to be one of the oldest professions) dates as far back as 200 BCE to 600 CE with the main contribution coming from Rome. Seemingly the mitigation of risk – both from an insurance perspective as well as from a legal perspective started around the same time. 

Which is such an interesting (and unexpected) outcome. 

Before we conclude this article, we thought we would share a little bit of info which we found to be interesting.

Did you know?It is believed that the origin of a tip or gratuity for waitrons comes from the acronym “To Insure Promptness”. The origin is believed to have started in Edward Lloyd’s Coffee House.  In Lloyd’s coffeehouse there was a brass container for the benefit of waitrons inscribed with the words “To Insure Promptness”. The idea was that a patron would put an amount of money into the container before sitting down to insure promptness of service from the waitrons. The “to insure promptness” on the container is what we now call a TIP. Or so it is foretold. Fact or fiction? That hasn’t been adequately established. But we kind of like the idea of it anyway…

We think insurance is a fascinating topic. One we are extremely excited to delve into. We hope that you will continue down this historical road with us as we learn a little more about how insurance began. 

We believe that knowing where something originated from gives us a much better understanding of the subject in its entirety. 

In our next article, we will be discussing the origination of specific insurance cover. We do hope you will join us then.

In the interim, please remember that if you have any questions on the information we have set out above or have a personal issue which you want to discuss with a suitably qualified legal professional, please do not hesitate to contact us at NVDB Attorneys

We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart.

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