Jane Dotson
Life insurance has been around for centuries, with its origins dating back to ancient Greece and Rome, where it was known as burial clubs. These societies provided a form of financial protection for citizens by covering the costly expenses of funeral proceedings and providing financial assistance to survivors. The concept was initiated by a Roman military general, Gaius Marius, who wanted to ensure his soldiers' funeral expenses were covered in the event of their death. The idea later spread throughout ancient Rome and was adopted by civilians who wanted to provide financial security for their families. The first written insurance policy was recorded in London, England, in the 1500s, and the sale of life insurance in the US began in the 1760s, with the establishment of the first life insurance corporation by the Presbyterian Synod of Philadelphia.
| Characteristics | Values |
|---|---|
| Date | 600–100 BCE in ancient Greece and Rome |
| First written policy | London, England in the 1500s |
| First modern actuary | William Morgan |
| First US life insurance corporation | 1735 in Charleston, South Carolina |
| First US life insurance | 1760s |
| First US life insurance for working class | 1875 |
| First federal regulation | 1935 |
| First federal ruling overturned | 1944 |
| First state regulation | 1945 |
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What You'll Learn
Ancient Greek and Roman origins
The concept of life insurance dates back to around 600–100 BCE in ancient Greece and Rome. These early societies provided a form of both health and life insurance to some of their citizens.
In ancient Rome, the idea of life insurance was initiated by a Roman military general, Gaius Marius, who conceptualized a sort of "burial club" among his fellow soldiers. The idea was that if one of them was killed in a military campaign, the survivors would pay for the funeral expenses. This concept later spread throughout ancient Rome and was adopted by everyday citizens. Burial clubs covered the cost of members' funeral expenses and provided financial assistance to survivors. Private citizens also formed burial associations, similar to modern life insurance, where members paid an admission fee and monthly dues.
In ancient Greece, merchants entered into arrangements with moneylenders that amounted to a form of insurance. A merchant would borrow money to purchase goods for export, paying a fixed sum of interest on the loan. Even if the ship or cargo was lost, the lender was assured of getting some of their money back, and the merchant was protected from repaying the entire loan.
The history of life insurance continued in 17th-century London, in a coffeehouse owned by Edward Lloyd, where merchants and sailors frequently discussed insurance deals. These conversations led to the formation of the Society of Lloyds, later known as Lloyd's of London.
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Early US life insurance
The concept of insurance dates back to ancient times, with the first written insurance policy dating back nearly 4,000 years. In the ancient world, the first forms of insurance were recorded by Babylonian and Chinese traders, who would divide their items among various ships to limit the loss of goods during treacherous journeys.
In the US, insurance arrived on the landscape at around the same time as the idea of a single nation began to form. The first insurance company in the US was based in South Carolina and opened in 1732 to offer fire coverage. Benjamin Franklin started a company in the 1750s, which collected contributions to prevent fires from destroying buildings. The Philadelphia Contributionship, co-founded by Franklin in 1752, set new standards for construction as it refused to insure properties it considered fire hazards.
The first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706. The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance.
Life insurance began in the US in the 1700s. In Pennsylvania, a group of Presbyterian officials created a fund to protect ministers and their families. It was called the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers, later changed to the Presbyterian Ministers Fund for Life Insurance. The business grew slowly, as it was difficult to convince people that the new idea of life insurance was worth the investment. By the early 1800s, there were successful life insurance companies in Pennsylvania, New York, Maryland, and Massachusetts.
The life insurance industry made significant strides beginning in the 1830s. Life insurance in force (the total death benefit payable on all existing policies) grew steadily from about $600,000 in 1830 to just under $5 million a decade later. Over the next five years, insurance in force almost tripled to $14.5 million before surging by 1850 to just under $100 million of life insurance spread among 48 companies. The sudden success of life insurance during the 1840s can be attributed to changes in legislation impacting life insurance and a shift in the corporate structure of companies.
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The first modern actuary
The origins of life insurance can be traced back to ancient Greece and Rome, around 600–100 BCE. In ancient Rome, "burial clubs" covered the funeral expenses of members and provided financial assistance to survivors. The idea was initiated by a Roman military general, Gaius Marius, who conceptualized a system where soldiers would contribute to paying for the funeral expenses of those killed in battle. This concept later spread throughout ancient Rome and was eventually adopted by everyday citizens.
In the 17th century, merchants and sailors gathered in a small coffeehouse in London run by Edward Lloyd, where conversations about insurance deals laid the groundwork for a more formal insurance association, the Society of Lloyds (later known as Lloyd's of London). The first life insurance company in the United States was established in Charleston, South Carolina, in 1735, initially offering only fire insurance. It wasn't until 1760 that they added life insurance to their offerings.
The world's first mutual insurer, the Society for Equitable Assurances on Lives and Survivorship (now known as Equitable Life), was established in London in 1762 by Edward Rowe Mores, a disciple of James Dodson. This society pioneered age-based premiums based on mortality rates and laid the foundation for modern life assurance. Mores also designated the term "actuary" for the chief official, the earliest known use of the term in a business context.
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Life insurance booms
Life insurance has been around in some form for centuries, but the industry has evolved significantly over time. The earliest known life insurance policy was taken out in London in 1583, with the first modern company offering life insurance, the Amicable Society for a Perpetual Assurance Office, being founded in London in 1706. However, life insurance as we know it today really started to boom in the 19th and 20th centuries.
In the 1800s, life insurance companies began to emerge across the United States, with successful companies operating in Pennsylvania, New York, Maryland, and Massachusetts by the early 1800s. The panic of 1837 and the resulting financial crisis led to a shift towards mutualization for life insurance companies, with the spread of mutuals and other developments creating a boom period for the industry. By the 1870s, military officers founded the Army (AAFMAA) and the Navy Mutual Aid Association (Navy Mutual) to provide financial support for the widows and orphans of US soldiers and sailors.
The late 19th and early 20th centuries saw a further expansion of the life insurance industry, with the creation of group life insurance and the rise in popularity of life insurance after World War I. By 1930, life insurance sales had peaked at $117 billion of insurance in force. While the introduction of the Social Security Act in 1935 provided a financial safety net for retired and unemployed Americans, life insurance sales received another boost after World War II, with the economic boom leading to increased sales and more Americans owning life insurance policies than ever before.
Over time, the life insurance industry has transformed, offering customized products based on individuals' unique financial situations. Technology and data have also played a significant role in changing the face of life insurance, making it more accessible to people across the country.
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Federal regulation
In 1935, the enactment of the Social Security Act provided a financial safety net for retired and unemployed Americans, impacting the life insurance industry's market share and prompting greater government involvement. This eventually led to a 1944 Supreme Court ruling advocating for federal regulation of the industry. However, this ruling was short-lived as, in 1945, Congress passed the McCarran-Ferguson Act, which delegated regulatory control to the states.
The McCarran-Ferguson Act of 1945 provided the insurance industry with a limited exemption from federal antitrust laws, solidifying state-level oversight. This act has been foundational in the insurance industry's regulatory framework, with states assuming primary responsibility for insurance regulation ever since.
Over the years, specific federal laws and programs have been enacted to address unique circumstances and challenges. For instance, the Serviceman's Group Life Insurance was established to provide life insurance coverage for active-duty military personnel, with the federal government bearing the administrative costs and risks associated with military service. Additionally, the Federal Risk Retention Act of 1981 promoted the growth of risk retention groups and alternative insurance mechanisms.
The industry has also witnessed landmark rulings, such as the 2003 State Farm v. Campbell case, where the U.S. Supreme Court imposed limits on punitive damages, and the 2004 investigation into insurance industry sales and accounting practices by the New York Attorney General and state regulators.
More recently, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act brought about a significant regulatory shift. While maintaining state-level oversight, the act established the Federal Insurance Office (FIO), tasked with reporting to Congress and the President on insurance industry matters. This act reflected a recognition of the industry's importance and the need for federal involvement, even within a predominantly state-regulated framework.
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Frequently asked questions
Life insurance has been around in some form since ancient times. The first life insurance policies were burial clubs in ancient Greece and Rome, dating back to 600 BCE.
The idea for these burial clubs was conceptualized by a Roman military general, Gaius Marius. He and his fellow soldiers formed a pact that if one of them were to be killed in battle, the survivors would pay for the fallen soldier's funeral expenses. This idea soon spread throughout ancient Rome and was adopted by everyday citizens.
The sale of life insurance in the U.S. began in the 1760s. The first life insurance corporation in America was created by the Presbyterian Synod of Philadelphia to benefit Presbyterian ministers and their dependents.
In 1774, Great Britain established the Life Assurance Act to prevent corruption by insurance agents against their clients. In the U.S., the Supreme Court ruled in 1944 that the industry should be regulated at the federal level. However, this ruling was short-lived, and by 1945, Congress passed the McCarran-Ferguson Act, which gave control of insurance regulation to the states.
In the 1800s, married women were not allowed to enter into contracts and therefore could not take out life insurance policies. By the 1840s, this began to change, with states like Maryland and Massachusetts enacting laws that allowed women to purchase life insurance and protected their policies from the claims of creditors.
