A brief history of insurance

22nd July 2021

Insurance might not seem like the most interesting of topics, but it actually has a long and fascinating history. While Britain is widely regarded as the birthplace of modern insurance, the need to mitigate against various types of risk has been a feature of societies across the world since ancient times. However, it was only with the significant growth of global trade in the 18th and 19th centuries that the insurance market developed into something akin to what we might recognise today. But where did it all begin?

The ancient world

The first examples of insurance date back to the ancient civilisations of Babylon and Greece, where so-called ‘bottomry’ contracts were used by merchants to reduce the risk of transporting goods by sea. The contracts allowed merchants to take out a loan with the proviso that they would not have to repay the lender if the ship was lost at sea. Meanwhile, the ancient Romans developed one of the earliest forms of life insurance – burial societies – which covered their members’ burial costs in exchange for a joining fee and/or monthly dues.

The development of an industry

However, it wasn’t until the industrial revolution and the expansion of global trade in the 17th and 18th centuries that insurance really took off. Particularly, maritime insurance became a thriving industry across Britain and northern Europe at this time. Lloyd’s of London, which can trace its roots back to a coffee house owned by Edward Lloyd in the late 1600s, became the go-to place for shipping news and maritime insurance during this time, and remains a household name to this day.

While forms of maritime and life insurance have been around for thousands of years, fire insurance was only born following the Great Fire of London in 1666. In 1680, the very first specialist fire insurance company, the Fire Office, was established; it issued one of the first property insurance policies for a house in the Barbican. By 1690, 10% of London homes were insured. Interestingly, it was fire insurers themselves who ran the fire brigade in these early years, using ‘fire mark’ plaques to identify which properties were covered by each insurer when the firefighters arrived.

A gambling habit

Modern life and protection insurance were also slow to develop, and were restricted to the middle and upper classes for many years. Interestingly, life insurance policies were not always taken out for the purpose of protecting one’s family financially upon death; they were also used for gambling. In the 1700s, there was no law against taking out a policy on the life of somebody else. So, gamblers started taking out policies on the lives of contemporary celebrities in the hope of winning a hefty payout if they died!

It wasn’t until the rise of ‘industrial life insurance’ in the 1900s that such protection became affordable for Britain’s working classes – but even then, it was extremely basic. Workers paid a low monthly premium to cover the cost of their burial, but there was no ongoing protection for their dependants.

Two World Wars

Up until the First World War, insurance had been a thriving export industry, with British insurers covering risks across Europe, the US and much of the British Empire. However, the World Wars saw the end of this stranglehold, with both the London and Paris governments annulling all cover held by policyholders in enemy countries at the beginning of the First World War. Later, the Great Depression created challenges for British insurers, who sustained heavy losses in the US in particular. Following the Second World War, further international losses were in store as the British Empire began to crumble.

And now?

Today, Britain’s insurance industry remains the largest in Europe and the fourth largest in the world, employing 310,000 people and contributing £32bn to the UK economy. The value of insurance was truly brought to the fore in 2020, as millions of people were affected financially by the COVID-19 pandemic. According to the Association of British Insurers, £202m was paid out in 2020 alone to bereaved beneficiaries who lost family members to the virus – equivalent to over £550,000 per day. And this is just a fraction of the total £6.2bn paid out in life insurance, income protection and critical illness claims last year. From ancient civilisations to a post-pandemic world, the need to mitigate risk has been, and still remains, an ever-present part of our society.

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