How Did Insurance Originally Begin?

When did insurance first begin? Why did it begin? As you are well aware, insurance works wonders when providing businesses the opportunity to grow and the peace of mind to do so, knowing that if something were to happen, they may continue with as little disruption as possible. Additionally, insurance helps bring families back from what would otherwise be terrible misfortune. It’s a small price to pay for huge protection – but where did the idea first come from? And when?

Insurance has its own roots in Canada, but it also has roots dating well back into the ancient world. Naturally, insurance today is not the same as it was hundreds of years ago, but the concept of “transferring risk” has existed since the times of Babylonian and ancient Chinese traders. The question of how insurance originally began can only really be answered with a history lesson. Read on for Excalibur’s history of insurance.

Early 4000-3000 BCE

Insurance can be traced as far back as historical society. Originally, merchants of Babylon would use something referred to as “bottomry” contracts. This date way back to 4000-3000 BCE. There is also evidence of bottomry being practiced by Hindus in early 6000 BCE, as well as being utilized in ancient Greece in 4^th century BCE. What were bottomry contracts? In essence, a bottomry contract was an agreement that granted a loan to a merchant, with the understanding that if the cargo being transported was lost at sea, then the loan did not need to be repaid. If the shipment made it through, then interest was applied on the loan for repayment. Towards the 15^th century, marine insurance became much more sophisticated.

There was even evidence of ancient “personal” lines insurance in Rome, where burial societies paid out for funeral costs in exchange for monthly dues from their members.

The Great Fire of London

The Great Fire of London, which took place in 1666, destroyed well over 30,000 homes. Not long afterwards in 1711 (during a period called the bubble era), a number of insurance companies started up. Unfortunately, a lot of these original insurance companies were fraudulent and sold fake securities to the public. In the midst, two successful organizations did form: the London Assurance Corporation and the Royal Exchange Assurance Corporation, whose formation marked the initial creation of liability and modern property insurance.

Lloyd’s of London, of course, requires its own proper mention. Lloyd’s of London was pinnacle to the development of insurance in Europe, beginning first as a coffeehouse that was frequented by bankers, merchants, and – yes, insurance underwriters. Later, it would become the most popular location to source underwriters for marine insurance. By 1769, Lloyd’s would be recognized as a formal group of insurance underwriters who accepted marine risks, and as British sea power expanded, Lloyd’s became one of the most predominant insurers of marine risks. They later added on property and fire risks.

 Mid 1800s

The first legitimate organization to supply insurance products in Canada, located in Montreal, was a company known as the Phoenix Assurance Company. In the 1800s and the early 1900s, the biggest risk to properties was fire – and insurance companies would later expand to acknowledge and insure against additional risks. Separate policies, at this time, were required to be purchased for items like theft, lighting, fire, and earthquakes.

In Lower and Upper Canada, several of the first life insurance companies would be founded in Hamilton, Ontario. These were Mutual Life, Confederation Life, London Life, and Sun Life. The formation of these companies later prompted the passing of the first insurance law in Canada, in 1868. After this point, insurance would begin to develop – rapidly.

As of 1950, despite the fact that the primary risk was still fire, there was a foundation for the modern concept of home insurance. Insurance companies began to offer policies that would insure against multiple risks as a larger, standard policy – closely resembling what is offered today.

The Present

Insurance has changed tremendously over the last several decades and continues to do so as climate change causes an alarming increase in disastrous weather events. Flooding, earthquakes, wildfires, and more have multiplied in frequency and intensity, prompting an unsure forecast of the future for the insurance industry. However, there are new possibilities with evolving tech. As an example, with personal auto insurance, there is now the introduction of insurance for driverless cars, ride sharing, telematics, drone technology, etc.

We’re also presented with threats that exist virtually, and insurance companies have to determine how to insure against these new risks. Phishing scams, cyber threats, data breaches, and more are posing a significant issue to both companies and households.

We’ve seen the history of how insurance has evolved, but the future is still unsure. New factors open up new possibilities. Given how insurance has changed over the last several thousand years, it’s possible that insurance will change again to reflect our evolving risks, new technology, and more.