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.
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.