The history of insurance traces the development of the modern business of insurance against risks, especially regarding cargo, property, death, automobile accidents, and medical treatment.
The insurance industry helps to eliminate risks (as when fire-insurance providers demand the implementation of safe practices and the installation of hydrants), spreads risks from individuals to the larger community, and provides an important source of long-term finance for both the public and private sectors.
Ancient era
In December 1901 and January 1902, at the direction of archaeologist Jacques de Morgan, Father Jean-Vincent Scheil found a 2.25 meter (or 88.5 inch) tall basalt or diorite stele in three pieces inscribed with 4,130 lines of cuneiform law dictated by Hammurabi (c. 1792–1750 BCE) of the First Babylonian Empire in the city of Shush, Iran. Code of Hammurabi Law 100 stipulated repayment by a debtor of a loan to a creditor on a schedule with a maturity date specified in written contractual terms. Laws 101 and 102 stipulated that a shipping agent, factor, or ship charterer was only required to repay the principal of a loan to their creditor in the event of a net income loss or a total loss due to an Act of God. Law 103 stipulated that an agent, factor, or charterer was by force majeure relieved of their liability for an entire loan in the event that the agent, factor, or charterer was the victim of theft during the term of their charterparty upon provision of an affidavit of the theft to their creditor.
Code of Hammurabi Law 104 stipulated that a carrier (agents, factors, or charterers) issue a waybill and invoice for a contract of carriage to a consignee outlining contractual terms for sales, commissions, and laytime and receive a bill of parcel and lien authorizing consignment from the consignee. Law 105 stipulated that claims for losses filed by agents, factors, and charterers without receipts were without standing. Law 126 stipulated that filing a false claim of a loss was punishable by law. Law 235 stipulated that a shipbuilder was liable within one year of construction for the replacement of an unseaworthy vessel to the ship-owner that was lost during the term of a charterparty. Laws 236 and 237 stipulated that a sea captain, ship-manager, or charterer was liable for the replacement of a lost vessel and cargo to the shipowner and consignees respectively that was negligently operated during the term of a charterparty. Law 238 stipulated that a captain, manager, or charterer that saved a ship from total loss was only required to pay one-half the value of the ship to the shipowner. Law 240 stipulated that the owner of a cargo ship that destroyed a passenger ship in a collision was liable for replacement of the passenger ship and any cargo it held upon provision of an affidavit of the collision by the owner of the passenger ship.
In 1816, an archeological excavation in Minya, Egypt (under an Eyalet of the Ottoman Empire) produced a Nerva–Antonine dynasty-era tablet from the ruins of the Temple of Antinous in Antinoöpolis, Aegyptus that prescribed the rules and membership dues of a burial society collegium established in Lanuvium, Italia in approximately 133 AD during the reign of Hadrian (117–138) of the Roman Empire. In 1851, future U.S. Supreme Court Associate Justice Joseph P. Bradley (1870–1892), once employed as an actuary for the Mutual Benefit Life Insurance Company, submitted an article to the Journal of the Institute of Actuaries detailing a historical account of a Severan dynasty-era life table compiled by the Roman jurist Ulpian in approximately 220 CE during the reign of Elagabalus (218–222) that was included in the second volume of the codification of laws ordered by Justinian I (527–565) of the Eastern Roman Empire, the Digesta seu Pandectae (533).
Additionally, the Digesta included a legal opinion written by the Roman jurist Paulus at the beginning of the Crisis of the Third Century in 235 CE on the Lex Rhodia ("Rhodian law") that articulates the general average principle of marine insurance established on the island of Rhodes in approximately 1000 to 800 BCE as a member of the Doric Hexapolis, plausibly by the Phoenicians during the proposed Dorian invasion and emergence of the purported Sea Peoples during the Greek Dark Ages (c. 1100–c. 750) that led to the proliferation of the Doric Greek dialect. The law of general average constitutes the fundamental principle that underlies all insurance.
Insurance in some forms dates back to prehistory. Initially, people sold goods in their own villages or gathering places. However, with the passage of time, they turned to nearby villages to sell. Two types of economies existed in human societies: natural or non-monetary economies (using barter and trade with no centralized nor standardized set of financial instruments) and monetary economies (with markets, currency, financial instruments and so on). Insurance in non-monetary economies entails agreements of mutual aid. Such economies can potentially foster institutions such as co-operatives, guilds and proto-states - institutions functioning to provide mutual protection and to encourage mutual survival in adverse circumstances. The "pay-off" for such "insurance" need not involve financial transactions. If one family's house gets destroyed, the neighbors are committed to helping rebuild it. Public granaries embodied another early form of insurance to indemnify against famines.
Babylonian, Chinese, and Indian traders practiced methods of transferring or distributing risk in a monetary economy in the 3rd and 2nd millennia BCE, respectively.See, e.g., Chinese merchants traversing treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system recorded in the famous Code of Hammurabi, c. 1750 BCE, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea. Concepts of insurance has been also found in 3rd century BCE Hindu scriptures such as Dharmasastra, Arthashastra and Manusmriti.
Achaemenian monarchs in Ancient Persia received annual gifts (tribute) from the various ethnic groups under their control. This would function as an early form of political insurance, and officially bound the Persian monarch to protect the group from harm.
The ancient so-called “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 is often cited as one of the earliest examples of insurance law, with some putting its origin in the Greek island of Rhodes as early as 1000 BCE. However, the earliest references to the “Rhodian Sea-Law” appear in late Roman legal sources.
The ancient Athenian "maritime loan" advanced money for voyages with repayment being canceled if the ship was lost. In the 4th century BCE, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.
During the Peloponnesian Wars, some Athenian slave-owners volunteered their slaves to serve as oarsmen in warships. These slave-owners paid a small yearly premium to the Athenian State, which, in case the slave was killed in action, would pay out the owner for the value of the slave.
The Greeks and Romans 600 BCE set up collegia, or guilds, called "benevolent societies", which cared for the families of deceased members, as well as paying funeral expenses of members. Guilds in the Middle Ages had similar practices. The Jewish Talmud deals with several aspects of insuring goods. Before modern-style insurance became established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.
Medieval era Sea loans (foenus nauticum) were common before the traditional marine insurance in medieval times, in which an investor lent his money to a traveling merchant, and the merchant would be liable to pay it back if the ship returned safely. In this way, credit and sea insurance were provided at the same time. To offset the sea risk involved, the merchant was obligated to pay a high rate of interest, in contrast to overland merchants who merely divided the profits. Pope Gregory IX condemned the foenus nauticum as usury in his decretal Naviganti of 1236 (Decretales, V, XIX, 19) and commenda contracts were introduced in response. Under commenda contracts, investors provided funds to an entrepreneur to carry out a trade, bearing the risk of loss in exchange for a favorable share of the profits when the entrepreneur returned. By the late thirteenth century Italian merchants had begun to separate risk management from finance, accomplishing the latter with cambium contracts based on the purchase of discounted bills of exchange from merchants who did not personally go to sea. To manage the sea risk, the merchants developed the insurance loan: the merchant paid a premium to a shipowner in the form of an unenforceable loan, under an agreement that the shipowner would pay the merchant's losses if his goods did not reach their destination.
In 1293, Denis of Portugal advanced the interests of the Portuguese merchants, and set up by mutual agreement a fund called the Bolsa de Comércio, the first documented form of marine insurance in Europe, approved on 10 May 1293.
In the thirteenth and early fourteenth centuries, the European traders traveled to sell their goods across the globe and to hedge the risk of theft or fraud by the Captain or crew also known as Risicum Gentium. However, they realized that selling this way, involves not only the risk of loss (i.e. damage, theft or life of trader as well) but also they cannot cover the wider market. Therefore, the trend of hiring commissioned base agents across different markets emerged. In 1310 the Chamber of Assurance was established in the Flemish commercial city of Bruges.
The traders sent (exported) their goods to the agents who on the behalf of traders sold them. Sending goods to the agents by road or sea involves different risks i.e. sea storms, pirate attack; goods may be damaged due to poor handling while loading and unloading, etc. Traders exploited different measures to hedge the risk involved in the exporting. Instead of sending all the goods on one ship/truck, they used to send their goods over number of vessels to avoid the total loss of shipment if the vessel was caught in a sea storm, fire, pirate, or came under enemy attacks but this was not good practice due to prolonged time and efforts involved.