02/07/2018
The History of Insurance:
Many people believe that insurance, a method of equitably transferring and distributing risk, started with Lloyds (the “world’s specialist insurance market”) in the late 1600’s, as a means of funding and securing the risk of trading vessels as they set out on their journeys to the New World. Of course, Lloyd’s, then, was nothing more than a coffee shop founded by Edward Lloyd, where city gentlemen (whom we might now call venture capitalists) would meet to discuss and provide funding for future voyages in return for a guaranteed share of the profits.
This basic system for the funding of those early voyages can be considered as the first emergence of “underwriting” as those investing in the New World voyages signed on the bottom of the ship’s manifest for the share of the cargo they were willing to accept responsibility (and return) for, usually spreading their own risk by taking shares in a number of voyages.
However, historic records show that Chinese and Babylonian traders first used simple methods of risk transfer and distribution between 2000 and 3000BC. The Babylonian system was recorded in the famous Code of Hammurabi around 1750BC, whereby merchants received loans to fund their shipments, paying the investors a sum in exchange for the investors agreement to cancel the loans in the event of the shipment being lost at sea or stolen.
Returning to the 17th Century, as a response to the chaos that followed the great fire of London that destroyed almost 14,000 buildings, those “underwriters” which had dealt exclusively in marine insurance formed companies that offered fire insurance and thereafter quickly expanded their operations into other areas of insurance. For insurance to establish in America it took a further 100 years, with Benjamin Franklin exerting a considerable influence over its foundation and development; but that’s another story.
