A Brief History of Insurance

Of course, insurance is a necessity today to protect us from many, many perils.  But how did insurance originate?  This brief history might have you view the internationally-known Lloyd's of London in an entirely different light!

As international commerce rapidly increased on a global scale, the owners of the cargo going on board ships destined for distant ports sought some sort of protection in case that cargo ended up on the bottom of the ocean.  Around 1688, the first informal gatherings of shippers and investors began taking place at Edward Lloyd's Coffeehouse on London's Tower Street.  Before a merchant or other financially-interested party would entrust his goods to a sea captain, he approached various "investors".  These investors would contractually agree to indemnify (reimburse) the owner if the goods didn't make it to their destination due to the ravages of the sea--in exchange for a premium.  If nothing happened to the ship, the investor kept the premium.  When ships or cargo were lost, the investor had to make good on his promise to pay the "assured".

No single investor was willing to insure the total value of a ship and its cargo.  A detailed description of the ship, its captain, the cargo, its route and destination was prepared and circulated among the participating investors.  Each investor indicated how much of the total value of the risk they were willing to "insure" by writing his name and the percentage under this description--thus the creation of underwriters.  From these humble beginnings sprang Lloyd's of London, the world's best known insurance underwriting society.

Incidentally, Benjamin Franklin himself founded America's oldest, continuously active insurance company in 1752.  Franklin and several associates established Philadelphia Contributorship for the Insurance of Houses from Loss of Fire.  The Contributorship, as is now the common reference, was a proactive insurance carrier refusing to provide coverage to houses and other structures that were not constructed according to strict building standards.  During the British occupation of Philadelphia in 1777, the Contributorship hired a chimney sweep to maintain the chimneys of insured houses that were still occupied by the Insureds. 

Cargo and fire.  Both served as the emphasis for the origins of insurance!

Primary source:  https://www.insurancejournal.com/magazines/features/2011/01/10/185786.htm