Alyssa Lane
Insurance has a long history that dates back to ancient civilizations, with the concept of risk management being central to its evolution. During the Middle Ages, the guild system emerged as an early form of insurance, particularly in Medieval Europe. Guild members contributed to a shared pool of funds, providing financial protection in case of losses or unforeseen events. This system, in its basic form, still exists today as group coverage. The Middle Ages also witnessed the development of separate insurance contracts, with the first known contract originating from Genoa in the 14th century. These contracts allowed for the separation of insurance and investment, marking a significant step in the evolution of insurance as a standalone industry.
| Characteristics | Values |
|---|---|
| Time Period | Middle Ages (5th to 15th century) |
| Guild System | Members paid into a pool that covered their losses. Wealthier guilds had large coffers that acted as a type of insurance fund. |
| Guild Functions | If a master craftsman's practice burned down, the guild would use its funds to rebuild it. |
| Benevolent Societies | Greeks and Romans (c. 600 BCE) set up guilds that cared for the families of deceased members and paid funeral expenses. Similar practices continued in the Middle Ages. |
| Talmud | The Jewish Talmud dealt with aspects of insuring goods. |
| Marine Insurance | Sea loans (foenus nauticum) were common before traditional marine insurance. Merchants paid a premium to shipowners, who would cover losses if goods didn't reach their destination. |
| Maritime Loans | Loans with rates based on favorable seasons for traveling. |
| First Marine Insurance in Europe | In 1293, Denis of Portugal set up the Bolsa de Comércio, the first documented form of marine insurance in Europe. |
| Separate Insurance Contracts | Invented in Genoa in the 14th century, allowing insurance to be separated from investment. |
| Oldest Insurance Company | The oldest insurance company is considered to be Hamburger Feuerkasse, founded in 1676. |
| First Insurance Book | On Insurance and Merchants' Bets by Pedro de Santarém (Santerna), written in 1488 and published in 1552. |
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What You'll Learn
Guilds as insurance funds
The concept of insurance is as old as human existence, with its origins in the Babylonian empire, medieval guilds, maritime insurance, and the Great Fire of London. Guilds, which existed throughout Europe during the Middle Ages, were groups of individuals with common goals. The term "guild" likely comes from the Anglo-Saxon root "geld," which means "to pay or contribute." The noun form of "geld" refers to an association of persons who contribute money for a shared purpose.
In medieval Europe, the guild system emerged, with members paying into a collective fund that covered their losses. Guilds were associations of craftsmen or merchants formed for mutual aid, protection, and the advancement of their professional interests. They established monopolies in their industries or localities, set and maintained standards for goods and trading practices, worked to stabilize prices, and influenced local governments to further their economic goals.
Guilds in medieval Europe can be traced back to the changing economies of western and northern Europe as they emerged from the Dark Ages. With the growth of towns in the 10th and 11th centuries, merchants were no longer itinerant peddlers but instead traded in specific localities. These merchants banded together to protect themselves from bandits or predatory feudal lords as they travelled.
The medieval guilds were generally of two types: merchant guilds and craft guilds. Merchant guilds were associations of merchants in a town or city, including local and long-distance traders, wholesale and retail sellers, dealing in various categories of goods. Craft guilds, on the other hand, were composed of craftsmen, with apprentices working for masters for little or no pay. Once they became masters, they paid dues to the guild and trained their own apprentices. Wealthier craft guilds had substantial funds that acted as a type of insurance. If a master's workshop burned down, the guild would use its money to rebuild it.
The basic style of insurance provided by guilds still exists today as group coverage. Additionally, the Greeks and Romans established guilds called "benevolent societies" around 600 BCE, which cared for the families of deceased members and paid for their funerals.
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The Code of Hammurabi
The concept of insurance is as old as human existence, with its emergence attributed to the need to spread risk among large numbers of people. The Code of Hammurabi, a Babylonian legal text composed around 1750 BC, is often regarded as the first example of insurance and risk transfer.
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Cargo insurance
The concept of insurance is as old as human existence, with the fundamental principle of insurance—spreading risk among many—being a basic human instinct. Cargo insurance, specifically, has a long history that dates back to ancient times.
One of the earliest examples of cargo insurance can be found in the Code of Hammurabi, which is believed to have been created around 1750 B.C. by the Babylonians. The code describes a form of bottomry, where a ship's cargo could be pledged in exchange for a loan, with repayment contingent on a successful voyage. If the ship was lost at sea, the debtor was not obligated to repay the loan. This is considered one of the first examples of transferring risk, a key principle of insurance.
In the Middle Ages, various forms of insurance existed, including cargo insurance. During this period, European traders traveled extensively to sell their goods and faced risks such as theft or fraud by the ship's crew. To mitigate these risks, they developed insurance loans, where merchants paid a premium to shipowners as an unenforceable loan. In return, the shipowner agreed to cover the merchant's losses if their goods did not reach their destination.
The Jewish Talmud, a significant text from the Middle Ages, also addresses several aspects of insuring goods. Additionally, the concept of "friendly societies" existed in England during this period, where people contributed money to a shared fund used for emergencies.
The Greeks and Romans, around 600 BCE, established guilds known as "benevolent societies," which provided support for the families of deceased members and covered funeral expenses. These practices continued into the Middle Ages, influencing the development of insurance during that time.
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Marine insurance
In the Middle Ages, marine insurance took the form of sea loans (foenus nauticum). An investor would lend money to a travelling merchant, and the merchant would be liable to pay it back with interest if the ship returned safely. If the ship was lost, the investor lost their money, but the merchant did not have to pay them back. This system provided credit and insurance at the same time, with the high-interest rate offsetting the sea risk involved.
The first documented form of marine insurance in Europe was established in 1293 by Denis of Portugal, who set up a fund called the Bolsa de Comércio to advance the interests of Portuguese merchants. In the thirteenth and early fourteenth centuries, European traders travelled across the globe to sell their goods, but they faced risks of theft or fraud by the captain or crew (known as Risicum Gentium), as well as the dangers of the sea. To hedge against these risks, merchants developed the insurance loan, where they paid a premium to a shipowner, who would agree to pay the merchant's losses if the goods did not reach their destination.
In the late Middle Ages, marine insurance spread across the Tyrrhenian coast cities and then to the rest of the Mediterranean, following a remarkable growth in trade and financial activities. The Italian city of Genoa was a particularly important centre of innovation in marine insurance, with the first insurance policy known to date being drawn up there in 1343. The first Genoese marine insurance regulation dates back to 1369, and in 1409, the republic's administrators enacted a tax on insurance.
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Bottomry contracts
The concept of insurance is an old one, with its origins in the Babylonian empire and the Code of Hammurabi, which dates back to around 1750 B.C. Bottomry contracts, or bottomage, are a form of insurance that originated in ancient times and were described in the Code of Hammurabi. Bottomry refers to the ship's bottom or keel and involves a transaction where the owner of a vessel borrows money, using the ship itself as collateral.
The Code of Hammurabi describes a form of bottomry as a risk-transferring technique. A bottomry loan would be taken, but repayment would be contingent on the ship successfully completing its voyage. If the ship did not return, the loan did not have to be repaid. This is different from traditional insurance, where one pays premiums and receives a benefit on the risk event. With bottomry, one receives a loan upfront and only repays it with a premium if the risk event doesn't occur.
In a bottomry contract, the ship's owner borrows money at a high-interest rate, using the ship itself as collateral. If an accident occurs during the voyage, the creditor loses out on the loan as the security (the ship) no longer exists or is damaged. If the ship returns safely, the lender receives the principal amount loaned plus interest. Bottomry is considered neither a loan nor a partnership, and writers like Lucius Mestrius Plutarchus have called it "the most disreputable form of money lending".
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Frequently asked questions
Yes, insurance existed in the Middle Ages.
Marine insurance was common, with merchants taking out insurance contracts on shipments to limit the loss of goods. Guilds also emerged during the Middle Ages, with members paying into a pool that covered their losses. Wealthier guilds had large coffers that acted as a type of insurance fund, helping to rebuild a master's practice if it burned down.
Insurance dates back to ancient times, with the first forms recorded by Babylonian and Chinese traders. The Code of Hammurabi, written around 1750 BC, describes a form of bottomry that functioned as insurance.
Merchants paid a premium to shipowners in the form of an unenforceable loan. In return, the shipowner agreed to pay the merchant's losses if the goods did not reach their destination.
Insurance became more sophisticated in Enlightenment Era Europe, and specialized varieties developed. The first printed book on insurance was published in 1552. By the late 19th century, governments began to initiate national insurance programs against sickness and old age.
