Jane Dotson
Insurance is an ancient concept that has evolved over the centuries into a modern business that protects people from various risks. The first forms of insurance were recorded by Babylonian and Chinese traders, with the Code of Hammurabi, written around 1750 BC, describing a form of bottomry where a ship's cargo could be pledged in exchange for a loan, with repayment contingent on a successful voyage. Ancient societies such as the Greeks and Romans formed the first types of life and health insurance through their benevolent societies, which provided care for families of deceased citizens. Over time, insurance practices became more sophisticated, with the first standalone insurance policies emerging in the 14th century and the development of actuarial science in the late 18th century. Today, insurance is a vital industry that helps spread risks, provides long-term finance, and ensures individuals and businesses are protected from potential losses.
| Characteristics | Values |
|---|---|
| First forms of insurance | Recorded by Babylonian and Chinese traders in the ancient world |
| First documented loss limitation method | Noted in the Code of Hammurabi, written around 1750 BC |
| First to insure their people | Achaemenian monarchs |
| First standalone insurance policies | Genoa, 14th century |
| First book on insurance | Published by Pedro de Santarém in 1552 |
| First modern actuary | William Morgan, appointed in 1775 |
| First American insurance company | Organized by Benjamin Franklin in 1752 as the Philadelphia Contributionship |
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What You'll Learn
The Code of Hammurabi, c. 1750 BCE
Insurance is an ancient concept that has evolved over the centuries. One of the earliest recorded instances of insurance can be traced back to the Code of Hammurabi, which was created around 1750 BCE. This Babylonian law code, attributed to Hammurabi, the sixth king of the First Dynasty of Babylon, is a comprehensive collection of laws encompassing various aspects of public life, citizen's rights and obligations, and the kingdom's justice system.
The Code of Hammurabi is written in the Old Babylonian dialect of Akkadian and consists of approximately 4,130 lines of cuneiform text, inscribed on a basalt stele discovered in 1901 in present-day Iran. The stele features an image of Hammurabi with Shamash, the Babylonian sun god and god of justice. The laws themselves are casuistic, often expressed as "if-then" conditional sentences, covering areas such as criminal law, family law, property law, and commercial law.
One notable aspect of the Code of Hammurabi relevant to insurance is the concept of risk management and liability. For example, Law 100 stipulated the repayment terms for a loan between a debtor and a creditor, with specific conditions and maturity dates outlined in a written contract. Laws 101 and 102 further elaborated on loan repayment, specifying that a shipping agent or ship charterer was only responsible for repaying the principal amount to their creditor in the event of a net income loss or total loss of the ship.
Additionally, the Code of Hammurabi addressed the responsibilities and liabilities of builders and engineers. For instance, if a builder constructed a house improperly, and the house collapsed, resulting in the death of its owner, the builder would face capital punishment. However, if the house only damaged goods, the builder was required to compensate for the losses and rebuild the house at their own expense.
The Code of Hammurabi also included provisions for maritime trade and shipping. One of the key principles outlined was a form of bottomry, where a ship's cargo could be pledged as collateral for a loan. In this arrangement, repayment of the loan was contingent on the successful completion of the voyage. If the ship was lost at sea, the loan was forgiven, providing protection for merchants against the risks of maritime trade.
The principles enshrined in the Code of Hammurabi laid the foundation for the development of insurance as a means of managing risk and providing financial protection. Over time, insurance evolved into a sophisticated industry, with the first modern actuary, William Morgan, appointed in 1775, and the emergence of standalone insurance policies in the 14th century, marking a significant shift in the separation of insurance from contracts and loans.
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![The Story of Life Insurance. [1907]](https://m.media-amazon.com/images/I/51kQvAmzUEL._AC_UY218_.jpg)
Ancient Greece and Rome, c. 600 BCE
Insurance in some form is as old as historical society. The first forms of insurance were recorded by Babylonian and Chinese traders. Around 600 BCE, the Greeks and Romans set up guilds called "benevolent societies", which provided care for the families of deceased citizens and covered funeral expenses. These societies continued for centuries in many different areas of the world and included funerary rituals.
In ancient Greece and Rome, the first types of life and health insurance were formed with their benevolent societies. The ancient Athenian "maritime loan" advanced money for voyages, with repayment being cancelled if the ship was lost. In the 4th century BCE, rates for these loans differed according to safe or dangerous times of the year, implying an intuitive pricing of risk with an effect similar to insurance.
The Greeks and Romans also understood the concept of bottomry, which was practised by Hindu merchants in 600 BCE. Under a bottomry contract, loans were granted to merchants with the provision that they would not have to be repaid if the shipment was lost at sea. The interest on the loan covered the insurance risk.
In addition to this, the ancient "Rhodian Sea-Law", applying to seafarers and merchants, included a stipulation that if a seafarer was forced to throw cargo overboard to save the ship from sinking, the loss would be reimbursed collectively by his colleagues. This law is often cited as one of the earliest examples of insurance law, with its origin possibly in the Greek island of Rhodes as early as 1000 BCE.
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Guilds in the Middle Ages
The concept of insurance is an ancient one, with the first forms of insurance recorded by Babylonian and Chinese traders. The first written insurance policy dates back nearly 4,000 years, with the Code of Hammurabi, written around 1750 BCE, describing a form of bottomry.
In the High Middle Ages, craftsmen united to form guilds to protect their common interests. The two main types of guilds were merchant guilds and craft guilds, but there were also frith guilds and religious guilds. Guilds were often both secular and religious organizations, providing members with mutual insurance, extending credit, legal aid, and helping members' children afford apprenticeships and dowries.
The guild system was a form of apprenticeship, with apprentices working for masters for little or no pay during their childhoods. Once they became masters themselves, they paid dues to the guild and trained their own apprentices. Wealthier guilds had large coffers that acted as insurance funds, providing a safety net for members. For example, if a master's practice burned down, the guild would rebuild it using its funds. If a master was robbed, the guild would cover their obligations until they could recover financially. If a master became disabled or died, the guild would support them or their surviving family.
The basic style of insurance used by these medieval guilds still exists today in the form of group coverage. The guilds' power eventually faded due to industrialization, modernization, and the rise of powerful nation-states that could issue patent and copyright protections. However, the medieval guild system continues to be of interest, with some modern variants of the structure proposed for independent contractors and remote workers.
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The first American insurance company, 1752
Insurance has a long history that dates back to ancient civilisations. The first forms of insurance were recorded by Babylonian and Chinese traders, who would divide their goods among various ships to limit the loss of goods. One of the first documented loss limitation methods was noted in the Code of Hammurabi, written around 1750 BC. Under this method, a merchant receiving a loan would pay the lender an extra amount of money in exchange for a guarantee that the loan would be cancelled if the shipment were stolen.
In the United States, the history of insurance dates back to colonial days. The first insurance company in the country was founded in 1752 in Philadelphia, Pennsylvania. Known as the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, it was established by Benjamin Franklin and several other leading citizens, including fellow firefighters. Franklin and his colleagues modelled their company after a London firm, structuring it as a mutual insurance company where policyholders would come together to share the risks.
At the time, Philadelphia had a population of approximately 15,000 inhabitants and eight volunteer fire companies. The city's planning incorporated fire prevention elements, such as wider streets and the use of brick and stone in construction. However, fires still occurred, and insurance offered a safety net for the residents of Philadelphia. The Philadelphia Contributionship issued seven-year renewable term policies, covering only the building. Policyholders would pay a deposit, which was refundable at the end of the seven-year period, minus a small fee for the survey, policy, and fire mark.
The Philadelphia Contributionship set new standards for construction by refusing to insure properties it considered fire hazards. The criteria it used to evaluate buildings laid the foundation for future building codes and zoning laws. Benjamin Franklin's involvement in the insurance industry extended beyond the Philadelphia Contributionship. In 1759, he helped establish the Presbyterian Ministers' Fund, the first life insurance company in the United States. Despite facing initial criticism from religious authorities, the life insurance practice gained acceptance as people recognised its value in protecting widows and orphans.
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Modern actuary, 1775
The history of insurance dates back to ancient civilisations, with the first forms of insurance recorded by Babylonian and Chinese traders. Over time, insurance evolved from informal, community-based risk-sharing models to sophisticated, data-driven industries. The development of actuarial science in the 17th and 18th centuries played a pivotal role in shaping modern insurance practices, particularly in the calculation of probabilities and the management of risk.
Actuarial science, the discipline concerned with measuring and managing risk, underwent significant advancements in the late 17th century. The emergence of studies in probability and annuities laid the groundwork for scientific risk assessment. Blaise Pascal and Pierre de Fermat's breakthroughs in expressing probabilities in the 17th century formalised the practice of underwriting and made insurance more accessible.
In 1762, James Dodson's work on long-term insurance contracts led to the formation of the Society for Equitable Assurances on Lives and Survivorship, now known as Equitable Life. This company pioneered the use of mathematical and scientific methods in insurance, setting a precedent for the industry.
William Morgan, appointed in 1775 and serving until 1830, is often regarded as the father of modern actuarial science. He contributed significantly to the field in the 1780s and 1790s, and his work built upon Dodson's earlier efforts. In 1776, the Society carried out the first actuarial valuation of liabilities, subsequently distributing the first reversionary bonus in 1781 and an interim bonus in 1809. They focused on equitable treatment of members and fair returns on investments, regulating premiums based on age and admitting anyone regardless of health status.
The late 18th century also witnessed the emergence of life insurance in the United States, with the Presbyterian Synods in Philadelphia and New York establishing the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759, followed by a similar relief fund created by Episcopalian priests in 1769. These developments further solidified the role of actuarial science in insurance, shaping the industry into the modern era.
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Frequently asked questions
Insurance has a long history that dates back to ancient societies. The first forms of insurance were recorded by Babylonian and Chinese traders to limit the loss of goods. Ancient Athenian "maritime loans" advanced money for voyages, with repayment being cancelled if the ship was lost. The first modern actuary was appointed in 1775, and the first American insurance company was organised by Benjamin Franklin in 1752.
One of the earliest examples of insurance law is the "Rhodian Sea-Law", which is said to have originated on the Greek island of Rhodes as early as 1000 BCE. Under this law, if a seafarer was forced to throw cargo overboard to save a ship from sinking, the loss would be reimbursed collectively by their colleagues. Another early example of insurance is the Code of Hammurabi, which was written around 1750 BCE. Under this code, a merchant receiving a loan would pay the lender an extra amount of money in exchange for a guarantee that the loan would be cancelled if the shipment was stolen or lost at sea.
Insurance evolved into a more sophisticated form of protection during the Renaissance, with the first book on the subject of insurance being published in 1552. In the late 17th century, insurance became established in England and the United States, with the first life insurance company in the American colonies being organised in 1759.
