Where did Insurance Come From?

Although we may think of insurance as a relatively modern idea, it is actually an important part of human history that dates back thousands of years. Of course, insurance as we know it today with deductibles and comprehensive policies and brokers hasn’t always existed, but it was developed from foundational concepts and strategies that individuals and civilizations put in place to mitigate risk.

Hammurabi’s Code

Many historians would argue that the first concept of insurance was outlined in King Hammurabi’s code1. Hammurabi was the sixth King in the Amorite’s first dynasty of Babylon, and he reigned from 1792-1750 B.C. Hammurabi was intent on improving the quality of his citizens’ lives and he believed that order was the best way to create a more advanced civilization. Because of this, he developed Hammurabi’s code, a set of laws that are now widely recognized to be among the first legal documents in human history. Although these laws were not the only ones to be made during that time period, they were by far the most influential as they became a model for other cultures and dynasties.2 Although it would not be given the name “insurance” until much later, the idea of financial protection was a part of the code, and it was rooted in Hammurabi’s desire to make sure that social justice was possible in his Kingdom. The law stated that debtors were not obligated to pay back a loan if a personal catastrophe made it impossible to do so.1 This law freed citizens from situations that would have otherwise forced them into lifelong debt or servitude.

Health Insurance in Rome?

As time went on, this idea began showing up in other places and shifted from a form of public law to private societies and institutions. Research indicates that in approximately 600 A.D., the Greeks and Romans began introducing life and health insurance into their guilds and special societies. Members of these groups would each contribute funds, and when one member died their funeral and other expenses would be paid for.1 This important development was another step towards the privatization of insurance and it’s expanded use for more than personal debt.

In the middle ages, guilds of skilled workers in Europe created common funds that would be used to help pay the cost of replacing a member’s equipment if it was to be destroyed by a fire or some other cause.3

Evaluating Risk

In the 1600s, prominent European thinkers like Blaise Pascal and Pierre de Fermat started developing laws of probability that laid the groundwork for the calculation of risk. The ability to evaluate risk is essential to provide accurate insurance coverage, so this was a significant step forward. This development would eventually lead to customized pricing and the range of coverage options that we’re so accustomed to today.2

Fire Created a Need for more Insurance

Since fires can be such a destructive force in a community, it seems only fitting and natural that two major fires were the impetus for the continued development of insurance coverage. The first was the great fire of London in 1666. The fire destroyed over 14,000 buildings, leaving many people homeless and disrupting many businesses in the area. In response, groups that had previously been offering marine insurance to merchants began to sell fire insurance 3, a product that is still popular today.

The second fire was in New York in 1835. By this time the idea of insurance had been popularized in North America, largely due to the influence of Benjamin Franklin. However, when the fire struck New York in 1935, none of the insurance companies were prepared for the scale of loss that they were expected to compensate for. In the wake of this crisis, Massachusetts became the first state to pass a law that required insurance companies to maintain enough reserves to deal with a major disaster like this.1 

The First Auto Insurance

The very first car insurance policy was actually created in 1897, which might be much earlier than you had expected. That’s because before Henry Ford started mass producing the first commercially available cars, the inventor Gilbert J. Loomis of Westfield, Massachusetts was building his own “horseless carriages”.  Driving around town without power steering or anti-lock brakes on roads that weren’t designed for cars wasn’t the safest activity, so Loomis drove over to a travel insurance office and they sold him an auto insurance policy.2 Once Ford began selling automobiles and traffic increased, it wasn’t long before liability coverage was mandatory for any car owner. It’s a good thing too because early cars were dangerous. In the 1930s, car accidents killed 85 people every day in the U.S. alone.4

Continued Growth

As time went on, the insurance business continued to grow into the large and dynamic industry that we know it to be today. Businesses and individuals began to purchase insurance not just because of local laws, but because they saw the benefit in contributing a fund that was there to cover their damages when some great loss occurred. With advances in technology, it has become easier and easier to provide insurance to people and businesses. The invention of the internet and shift towards digital data storage has made the insurance industry more seamless than ever before.

Today insurance is an important part of many economies. Consider that fact that in the year 2014, Canadian insurance companies wrote $49.5 Billion in direct written premiums for insurance on cars, homes and businesses.5 That’s an outstanding amount of money, and that number is only representative of Canada’s population. Canada has a relatively small population compared to other developed nations like the U.S., so it’s easy to see just how large the insurance industry is on the modern global scene.

Where does Cooke fit in?

Here at Cooke Insurance, we’re proud to be a small but important piece of the story of insurance. For over 40 years, we’ve been offering unparalleled customer service to individuals and business organizations who need premium coverage. With a wide variety of insurance options that can be tailored to meet your needs, there’s something for everyone at Cooke. We’re a distinctly Maritime company with a focus on serving clients in Atlantic Canada. Visit the Cooke location closest to you and to speak with an insurance advisor.

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