RIMS Presentation Research

Part
01
of two
Part
01

Interesting Historical Facts About Insurance

Insurance has a long and storied history, with its earliest precursors dating back as many as 5,000 years. We have assembled a collection of seven interesting historical facts relating to insurance and how people have perceived it. Several facts deal with interesting developments in the evolution of insurance, such as the fact that it took a massive three-day fire in 1666 CE for the first fire insurance company to be founded. Other facts deal with historical perceptions of insurance, such as the fact that life insurance was once viewed as anti-religious. Some facts deal with interesting historical forms of insurance that may seem strange today, but made economic sense at the time, such as diamond engagement rings. Below is a complete description of our findings.

Insurance: Interesting Historical Facts

1. The earliest-known form of risk pooling (i.e., insurance) dates back to circa 3,000 BCE.

Interestingly, modern insurance's earliest precursor arose about 5,000 years ago. Insurance is, in essence, the practice of sharing risk within a group, so that one's losses, if they occur, can be mitigated. The first-known use of this practice came circa 3,000 BCE, when merchants in China, Sumer, and Babylonia began combining their cargo so that each shipment contained items from several merchants. That way, risk was shared amongst the group; instead of one merchant losing a large amount of cargo if the shipment was lost via natural disaster, piracy, or some other means, multiple merchants would lose a comparatively small amount of cargo. This is considered to be the earliest-known precursor to modern insurance.

2. Some of the earliest insurance policies involved using ships as collateral.

An interesting development in the ancient evolution of insurance involved using seafaring vessels as collateral. As the previous fact implies, insurance arose as a protection for merchants against the many dangers found along ancient trade routes, land or sea. Some of the earliest insurance policies, used by merchants in Babylonia, Phoenicia, and Greece as early as 1790 BCE, were called "bottomry" contracts. These contracts involved a lender providing funds to a seafaring merchant, with the merchant's ship serving as collateral. The key aspect of bottomry contracts that effectively made them insurance policies was that if the ship was lost or destroyed along the way, the merchant would be absolved of his debt. A similar ancient insurance/loan hybrid called respondentia used the merchant's cargo as collateral in place of his ship.

3. Hammurabi's Code was the earliest known written insurance policy.

Interestingly, one of the oldest written law codes that still exists today contains the earliest known written insurance policy. Hammurabi, a Babylonian king who reigned from 1792 to 1750 BCE, is famous for his set of laws, generally called Hammurabi's Code, inscribed on a stone pillar. The set of laws is most known for its policy of "'lex talionis,' or the laws of retribution, sometimes better known as 'an eye for an eye.'" However, it also contains a clause which functions as a written insurance policy for debtors. It states that, if a debtor is made unable to repay his loans for reasons outside of his control, he will be absolved of his debts.

4. The worst fire in the history of London inspired the first fire insurance.

By 1666 CE, massive fires were nothing new to human civilization (consider the Burning of Rome in 64 CE as one of many examples). Yet fire insurance still had not yet arisen in response, which left the citizens of London woefully unprepared for one of the city's worst-ever calamities. A massive three-day fire, from September 2 to 5, 1666, engulfed "a large part of the City of London, including most of the civic buildings, old St. Paul’s Cathedral, 87 parish churches, and about 13,000 houses." In response to the disaster, Nicholas Barbon created the first known fire insurance company.

5. In early America, many religious figures saw life insurance as an affront to God.

Before the mid-1800s, life insurance was "not nearly as popular as flood and fire insurance" in America. Interestingly, part of its unpopularity was due to a perception by religious figures that life insurance was anti-religious. Life insurance was, in their view, "akin to gambling and betting against God." While this perception changed over time, some religious groups continued to hold it. For example, to this day the Amish reject traditional insurance, though they have their own form of community-based insurance in which the community pools its money to pay for costly expenses normally covered by insurance, such as medical bills.

6. In the mid-1800s, insurance companies re-framed the issue of life insurance, causing a surge in popularity.

As discussed above, religious opposition to life insurance was one factor that initially kept its popularity low, particularly relative to other forms of insurance. However, in the mid-1800s, insurance companies re-framed the issue, "appealing to the moral duty of husbands to provide for their families in the event of premature death." Interestingly, it was this appeal to morality that successfully overcame the opposition to life insurance and made it much more mainstream for individuals, especially married men with the requisite means, to purchase life insurance. Some of the most well-known modern life insurance companies, including Mass Mutual and Met Life, were founded in the mid-1800s as a result of this boom.

7. In the early- to mid-1900s, engagement rings were used as a form of insurance for women in case her fiance severed ties.

Like bottomry, many historical forms of insurance seem strange and out-of-place today, but made economic sense at the time. Interestingly, engagement rings were one such form of insurance in the early- to mid-1900s. In the United States prior to the 1930s, many states had a "Breach of Promise to Marry" law, which effectively guaranteed a woman to financial compensation if her fiance broke off their engagement. This was necessary because couples would often have sex after engagement but before marriage, and if a woman was known to have lost her virginity, it would be difficult for her to find a man to marry, which would exclude her from the economic benefits that, at the time, were available only to men.

From our modern perspective we recognize the entire system as incredibly sexist, but at the time the Breach of Promise to Marry laws afforded women what was often their only recourse if they found themselves in this position. However, in the 1930s these laws began to be repealed across the country. Legal scholar Margaret Brinig recently discovered that, at the same time, diamond engagement ring purchases shot up. In fact, her regression analysis found that "this legal change was actually the most significant factor in the rise of the diamond engagement ring." Thus, it appears that women used diamond engagement rings as a de facto Breach of Promise to Marry contract — in other words, an insurance policy, in case their fiance severed ties. If she lost her virginity while engaged, and her partner broke off the engagement before marriage, she'd still have the expensive ring as financial compensation.

Conclusion

The concept of insurance — pooling risk to mitigate losses — originated at least some 5,000 years ago, when ancient merchants realized that shipping their cargo together meant that each merchant would lose fewer items if the shipment was lost. Since then, insurance has gone through significant evolution to get to its modern-day position. Above, we have provided several interesting facts relating to this evolution, including the use of ships as collateral in a primitive insurance scheme known as bottomry, and the birth of fire insurance as a result of the Great Fire of London.

The perception of insurance has evolved, too: religious figures once thought that life insurance was anti-religious (and some still do), but a successful marketing campaign in the mid-1800s made life insurance a moral imperative for those with the means to purchase it. Finally, the fascinating story of diamond engagement rings as a form of insurance for women in the early- to mid-1900s shows that some kinds of insurance, which may seem strange today, nonetheless arose out of economic necessity in their historical context.
Part
02
of two
Part
02

Future Risks to Insurance Companies

Our research team extensively searched white papers, top consultancy databases such as Deloitte and McKinsey, and technology and insurance websites to provide you with articles showing future risks to insurance company clients. Some of our articles include insurance risks from 2030, however, all research indicates that these risks will be prominent during the 15-20 year time period you inquired. (2034-2039)Our results are listed below.

FINDINGS

ARTICLE #1 -Autonomous vehicles risks killing the insurance industry by 2035

A huge risk to insurance clients is that autonomous vehicles may put insurance companies out of business, forcing clients buy insurance directly from the car manufacturer. This would eliminate the ability to shop around for the best price quote. According to research by and the Stevens Institute of Technology, insurers could be in trouble as automation becomes more prevalent, declining premium revenue enough to put some insurance companies out of business.

Article #2- Whose fault is it? The perils of insuring self-driving cars

The rise of self-driving cars will leave insurance clients facing a huge risk in the event of an accident. If two self-driving cars collide, since they were both machine driven it will be difficult to determine whose fault the accident was. It is possible that clients may risk insurance increases to situations beyond there control and due to machine error.

ARTICLE #3- Risk #3 Writing a policy based on a machine, not Human Error

Client's will no longer be able to control their premiums. Typically, algorithms are used to quote a driver based on behavior such as their credit, home ownership, and driving record. The algorithms and data used to help eliminate the risk of an insurance company losing money. However, in the next 15-20, many cars with being autonomous and insurance companies will have to learn to write a rate based on machine error. Liability may be determined case by case. The insurance company will need to create a competitive rate in order to keep customers but will be taking a gamble in unfamiliar territory when writing new policies and the client will risk increasing premiums due to the frequency of machine errors.

ARTICLE #4- Insurance 2030--The impact of AI on the future of insurance

McKinsey provides an extensive report on what the insurance industry will look like in 2030. The report states that artificial intelligence will dominate the industry. Risks discussed in the report include when a driver decides to use the car in active mode, a “pay-as-you-live” basis for insurance premiums, the use of dash cameras and drones for accidents, the explosion of data from connected devices, increased physical robots, and 3-D print buildings. Insurers will have to access all these developments will change risk assessments and clients will risk the uncertainty of “pay-as-you-live rates.

ARTICLE #5- Insurance 2030: Utopia or Dystopia? - Insurance Thought Leadership

This article shows both Utopia or dystopia views on what will happen as we become more and more connected. Future risks for insurance companies and clients include the surveillance state and privacy laws, cybersecurity threats, machine errors, and bio disasters. The insurance industry exists to protect individuals and business from loss, but they will also be taking on risk because machine error can sometimes be more disastrous than human error. Clients will face risk the invasion of privacy and safety concerns with technology failure.

Article #6- Hacking Autonomous Vehicles: Is This Why We Don’t Have Self-Driving Cars Yet?

A huge risk for insurance companies clients will be cybersecurity threats. For example, what happens if a driverless car is hacked? When information is stolen due to cybercriminals at a data center, it results in security breaches and financial loss. If a cybercriminal hacks an autonomous vehicle, it can result in the loss of lives. This is a very serious insurance risk. Although self-driving vehicles are designed to be safer and eliminate millions of global traffic fatalities, insurance companies and their clients must consider that a hack could result in a huge disaster. The hacker could take complete control of the vehicle causing multiple wrecks and fatalities.

Article #7- Can AI Cure What Ails Health Insurance?

Artificial intelligence is the future of health care. Companies are already starting to use home-health monitoring systems and attempt to predict ER visits before they happen. However, artificial intelligence and extensive home monitoring can pose at least two major risk factors for insurance companies. The first risk is client-privacy. As doctors conduct home visits and use in-house monitors, insurance companies may detect health conditions that they normally would be unaware of. These could increase premiums and raise concerns about when a health monitor infringes with privacy laws. Another major concern is cybersecurity threats. A hacker could hack into a system and pretend to be a doctor, change the code to prevent alerts for medical emergencies, manipulate records, or steal a patient's personal data. Data can also be hacked and changed on the patient's behalf so that the patient can get lower rates.


Sources
Sources

From Part 01
Quotes
  • "China, 3000 BC: that's the date on insurance's birth certificate. The proud parents were Chinese merchants who, tired of losing valuable goods in shipwrecks, proposed what is now recognized as the oldest predecessor to modern insurance. Merchants divided their goods evenly among the ships, meaning that each boat carried a mix of cargo, not just one merchant's."
  • "Around 1790 BC, the Babylonians took insurance to the next level. As merchants faced the many perils of ship and caravan trade — squalls, pirates, thieves — King Hammurabi, of "an eye for an eye" fame, enacted a new type of insurance to keep business (literally) afloat. He (or someone he knew) proposed the concept of bottomry, which allowed merchants to finance their shipping through loans from lenders."
  • "The spark for insurance against natural disasters came when Nicholas Barbon, reacting to the great London fire of 1666, created the first fire insurance company."
Quotes
  • "Bottomry, a maritime contract (now almost obsolete) by which the owner of a ship borrows money for equipping or repairing the vessel and, for a definite term, pledges the ship as security—it being stipulated that if the ship be lost in the specified voyage or period, by any of the perils enumerated, the lender shall lose his money. A similar contract creating a security interest in the cargo is called a respondentia."
Quotes
  • "Great Fire of London, (September 2–5, 1666), the worst fire in London’s history. It destroyed a large part of the City of London, including most of the civic buildings, old St. Paul’s Cathedral, 87 parish churches, and about 13,000 houses."
Quotes
  • "As early as 3000 BC, Chinese merchants pooled their risk of loss when moving cargo down the rapid Chinese rivers. In 3000 BC, merchants and traders in Sumer and Babylonia pooled their risk to prevent major losses of cargo to thieves and pirates."
  • "Some lenders decided to assume a greater risk in exchange for charging a higher interest rate by forgiving the loan if the ship or cargo was lost. Even specialized terminology was used to describe these loans: bottomry loans used the ship as collateral whereas respondentia loans used cargo as collateral."
Quotes
  • "The first written insurance policy appeared in ancient times on a Babylonian obelisk monument with the code of King Hammurabi carved into it. The Hammurabi Code was one of the first forms of written laws. These ancient laws were extreme in most respects, but one offered basic insurance in that a debtor didn't have to pay back his loans if some personal catastrophe made it impossible (disability, death, flooding, etc.)."
Quotes
  • "The Code of Hammurabi was one of the earliest and most complete written legal codes, proclaimed by the Babylonian king Hammurabi, who reigned from 1792 to 1750 B.C...Hammurabi’s Code was carved onto a massive, finger-shaped black stone stele (pillar) that was looted by invaders and finally rediscovered in 1901."
  • "Hammurabi’s Code provides some of the earliest examples of the doctrine of “lex talionis,” or the laws of retribution, sometimes better known as “an eye for an eye.”"
Quotes
  • "The purpose of [Roman burial clubs] was to pool the resources of the members, so when a soldier died unexpectedly, he would receive a proper burial. While the Romans were advanced in many ways, the purpose of a proper burial was different than you may think. Ancient Romans believed that if a proper burial was not given, unhappy ghosts would be unleashed."
  • "In the early years that life insurance was offered in the U.S., it was not nearly as popular as flood and fire insurance and was even preached against as wicked by religious leaders. Their argument was that purchasing life insurance was akin to gambling and betting against God."
  • "By the mid 1800s, life insurers began appealing to the moral duty of husbands to provide for their families in the event of premature death. It was then that the life insurance industry experienced a real boom. Some of the companies formed during that time period are still around today, such as New York Life (1845), Mass Mutual (1851), Guardian Life (1860) and Met Life (1864)."
Quotes
  • "Once upon a time, diamond rings weren't just gifts. They were, frankly, virginity insurance. A now-obsolete law called the "Breach of Promise to Marry" once allowed women to sue men for breaking off an engagement. Back then, there was a high premium on women being virgins when they married—or at least when they got engaged."
  • "If the groom-to-be walked out after he and the bride-to-be had sex, that left her in a precarious position. From a social angle, she had been permanently "damaged." From an economic angle, she had lost her market value."
  • "But in the 1930s, states began striking down the "Breach of Promise to Marry" law. By 1945, 16 states representing nearly half of the nation's population had made Breach of Promise a historical relic. At the same time, the diamond engagement ring began its transformation from decorative to de rigueur."
  • "Regressing the percent of people living in states without Breach of Promise against a handful of other variables—including advertising, per capita income and the price of diamonds—[legal scholar Margaret] Brinig found that this legal change was actually the most significant factor in the rise of the diamond engagement ring."
  • "An engaged couple aren't all that different from a borrower and a lender. The woman is lending her hand in marriage to the man, who promises to tie the knot at a later date. In the days of Breach of Promise, the woman would do this on an unsecured basis -- that is, the man didn't have to pledge any collateral -- because the law provided her something akin to bankruptcy protection."
  • "Put simply, if the man didn't fulfill his obligation to marry, the woman had legal recourse. This calculus changed once the law changed. Suddenly, women wanted an upfront financial assurance from their men."
From Part 02
Quotes
  • "Here's a brain-teaser: If two self-driving cars collide, who has to pay for repairs? The answer isn't necessarily as simple as determining who hit whom, a common factor in determining liability when human drivers are behind the wheel. "
Quotes
  • "As AI becomes more deeply integrated in the industry, carriers must position themselves to respond to the changing business landscape. Insurance executives must understand the factors that will contribute to this change and how AI will reshape claims, distribution, and underwriting and pricing."
Quotes
  • "All technologies seem 100 percent safe when they’re new. But as we learned with emails and operating systems back in the ’90s and early 2000s, nothing is safe as soon as it is released to the public. This is especially true with self-driving cars, as some of the AI that controls them is still partially unidentified."