Grab a cup of coffee (it’s relevant, we promise) and enjoy today’s deep dive into the twisty history of insurance!
Ancient Origins of Insurance: From China to Mesopotamia
Everything in the modern world can feel needlessly complicated, and insurance is no exception. What’s the difference between whole and term life? Why are there tiers? Who’s my tertiary beneficiary again?
Well, the history of insurance is itself a little complicated. And, like many tidbits of history, it starts in Mesopotamia.
Around 1800 BC, a system called bottomry was in use. A cargo owner would borrow money against his cargo, in case it sunk during a trade voyage. He would pay that money back upon the cargo’s safe arrival, but this way, in case his cargo was lost, he had enough capital to start up again. Ancient contracts, written in cuneiform, depict agreements between caravans and investors.
Insurance was a commercial, rather than private, affair. And it remained this way worldwide at the time. Around the same time on the other side of the globe, Chinese merchants were also drafting risk sharing agreements. Merchants would band together and divide their goods equally among separate ships. If one of the ships could not be retrieved, then the losses were not nearly so devastating. They were shared among a larger pool--an insurance concept that still exists today.
Insurance for the Roman Afterlife: It’s Your Funeral
It was the Roman military that employed the first inklings of health and life insurance as we know it today. In a world where an improper burial could result in curses and ghosts, ever-at-risk-of-death Roman soldiers could join burial clubs.
Basically, whenever a member died, the other members would chip in for their funeral--and the same would be done for them when their time came. This kept the burden off of the dead soldier’s kin and insured a proper, ghostless burial ceremony.
The Middle Ages: The Guild’s The Thing
In the late Middle Ages, economic progress was finally making headway. This had a large part to do with a new system of guilds. Medieval guilds provided what we might call “group insurance” today.
Guilds were defined by their craft: there were guilds of blacksmiths, guilds of carpenters, guilds of different skill-based artisans. Apprentices started when they were young, providing pro bono labor in exchange for food, shelter, and their master’s skill set. An apprentice would start paying dues to the guild once he became a master himself. The guild helped set up more apprentices and protect individuals during times of loss, drawing off their large pool of collected dues and helping to insure employment.
The Renaissance: Pirates, Contracts, and Coffee Cups
In 1347 Genoa, the first insurance contract was set to ink. At this point in time, maritime insurance was commonplace. Like the Chinese and Mesopotamian merchants some millennia before, sea merchants understood the risks involved in trading goods overseas. Rot, disease, sun, moisture, rats, storms, war, mutiny, and pirates were among just a few of the risk factors.
By the 17th century, one major trade good had taken the world by storm: coffee. Coffee transformed the European economy not only through pure trade, but also through an interesting side-effect: all the business meetings held at coffee houses.
Lloyd’s of London, the famous English brokerage known for insuring out-of-left-field requests (like Ozzy Osbourne’s tongue or the possibility of an alien abduction), started off as a coffeehouse where merchants could arrange insurance for--you guessed it--ships and cargo.
But things weren’t perfectly safe on land, either. In fact, the private insurance that we know today came about, as the old adage says, in a trial by fire.
Modern Insurance and the Great Fire of London
The Great Fire of London struck in 1666, a time when most of London consisted of close-knit wooden buildings. It was easy for a stray fire in Pudding Lane to soon go out of control and consume a large chunk of London. In fact, the fire burned for four whole days. Casualties included upwards of 13,500 houses, several places of business and state, and the old St. Paul’s Cathedral--not to mention 87 other churches and chapels. If you happened to be one of the owners of these destroyed buildings, you had no protection against what amounted to a total loss of assets, income, and shelter.
This gave a chap called Nicholas Barbon a good idea. He formed a company that provided the following two services in exchange for an early investment (or premium): 1) if something you had paid money to insure was on fire, Barbon would send around a fire brigade, and 2) would compensate you for your loss.
Nicholas Barbon’s idea soon became a worldwide commonplace service. Today, we call it insurance.
What Does “Insurance” Mean, Anyway?
Insurance originally meant ‘engagement to marry.’ It comes from an old French cognate of the word we use today to mean hedging against the risk of loss.
Of course, the old saying applies either way: ‘til death do us part.