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Insurance through the ages
The need to protect individuals against changes in fortune is as old as civilisation. People throughout the world and throughout history have developed different organisations and structures, such as the Roman colleges and Anglo Saxon gilds, to guarantee mutual protection in wealth and adversity.
This brief history of the modern business of insurance focuses on how the industry developed beyond these early protective organisations by examining the growth of specific insurance organisations and the different forms of insurance they provided.
The earliest identifiable class of insurance as a business was marine insurance. Early forms of modern marine policies have been traced back as far as the Italian city states of Genoa and Palermo in the 13th century. According to contemporary sources, marine insurance was available in France, Spain, Italy, Flanders and England by 1500, and early forms of marine policies are found in the records of the High Court of the Admiralty of England from 1547.
By 1574, there were 30 sworn brokers in London who produced policies underwritten by London merchants. Although this developing insurance market in London was subject to competition in the 17th century from Antwerp, Amsterdam and Hamburg, from the early 18th century it began to attract substantial international business. In 1719, it was calculated that the City of London’s overseas commitments in marine risks, which were underwritten by over 150 subscribers, amounted to several million pounds a year.
The first corporate marine insurers in Europe, as distinct from the individual marine underwriters, were the Royal Exchange Assurance and the London Assurance, both established in London in 1720. From this date until 1824 no other English corporate bodies were permitted to write marine insurance. This fostered the growth in London of individual underwriters who, by 1712, had adopted the name of Lloyds as a business address from the coffee house of Edward Lloyd, where such marine information was exchanged.
The first UK company to undertake marine business after the ending of the monopoly of the Royal Exchange and London Assurance was the Indemnity Mutual Marine Assurance Company.
Although pre-dated by marine business, fire insurance was the first to achieve corporate status. Municipal or state-funded fire insurance originated in Germany in 1623, with the establishment of the Great Werder Fire Fund in Prussia, but the first fire insurance companies were established in England. Around 1681, the Fire Office was established in London by Dr Nicholas Barbon, followed by the Friendly Society in 1683 and the Hand-in-Hand Fire & Life Insurance Society (also known as the Contributors for insuring houses, chambers, or rooms, from loss by fire by amicable contribution) in 1720.
All of the early British fire insurance companies restricted their business to London and initially to buildings, only extending to include contents around 1708 and to accept business outside London from 1710. Some companies, such as the Phoenix Fire Office, were also exploiting business overseas before the end of the century, but most had to wait until the mid-19th century when the opportunity arose to expand overseas and establish agencies in the British colonies.
In the new world, the development of towns and cities and the appearance of European companies lead to the establishment of local insurance companies such as the New Zealand Insurance Company, the first underwriting company in New Zealand, which was established in 1859.
Policies offering insurance on lives were available from the late 16th century. The earliest recorded example in the UK dates from 1588 but, in other countries, such as the Netherlands and France, insurance of lives was prohibited until much later. Life assurance as a corporate business did not really develop until 1699 with the establishment in England of the Society of Assurance for Widows and Orphans, followed a year later by the Second Society of Assurance for Widows and Orphans, followed in 1706 by the Amicable Society.
The early societies insured a limited number of people, charging the same premium for each member and fixing them within a narrow age range, typically between 12 and 45. Having been turned down because his age fell outside this range, James Dodson developed a scientific selection rating that based premiums on age and life expectation. This led, in 1762, to the foundation of the Society for Equitable Assurances on Lives and Survivorships, which allowed all types of lives to be insured.
Although some were prudently making provision for dependants on their death, it is estimated that in the 1830s and 1840s between 30% and 50% of lives in the UK were assured by a third party either as business indemnities, partners protecting their interests or as a speculation. This form of betting on lives was outlawed in 1774, after which time anyone insuring the life of another person had to prove that they had an interest in the life or death of the person insured.
In the mid-19th century, the percentage of those with life assurance was still relatively small – the majority came from the landed, professional and commercial classes. The first UK group life assurance scheme was established by the Provident Clerks’ Mutual Benefit Association in 1846. This served to open up the market, allowing companies to pay the premiums for providing life assurance to their employees as a benefit of employment.
In 1852, industrial policies were introduced by the Family Friendly Society that provided life cover in exchange for small weekly payments and made life insurance accessible to all.
Pensions and annuities
The 1706 charter of the Amicable Society permitted the company to grant annuities, although these were not used in the way annuities are today. Starting in the first quarter of the 18th century, annuity societies such as Beech Oil Annuities and the Brotherly Society of Annuitants operated schemes intended to allow provision of an income for dependants. These schemes were particularly recommended to those whose income was purely based on their profession rather than on an estate or a business, which could be passed on through inheritance.
Annuity experts consider it likely that even in the early stages of their development annuities were used by some as a form of pension provision as we understand it today. The earliest references advising people to take out an annuity to guard against old age and infirmity date from the 1830s, but investigations into the sex and average age of annuitants of the Norwich Union Society for Insurances on Lives and Survivorships in 1822 suggest that, by this date, about one third of annuities were being used to provide what we would now think of as pensions.
Occupational pension schemes existed by the 1880s when the Norwich Union Fire Insurance Society first instituted a superannuation scheme for its own staff. However, these schemes only really became popular in the 1920s and 1930s.
The term accident insurance is used to describe all types of commercial insurance other than marine, aviation, fire and life. Specialist companies developed to answer the changing needs of everyday lives and almost all were later absorbed into the more established fire and life companies to form the great composite offices which appeared in the first quarter of the 20th century.
Among the earliest accident insurers were those established to insure against damage caused by hailstorms, a form of insurance pioneered by the Mecklenburg Hail Insurance Association, established in Germany in 1797. This form of insurance began in France in 1822 and came into the UK in the 1840s with the establishment of the Farmers’ and Gardeners’ Hailstorm Insurance Company in 1842.
Livestock insurance, the protection of farmers from loss caused by disease in their animals, originated in northern Germany in the 1720s. It existed in Denmark by 1774 but was only successfully introduced in Britain in the mid-19th century with the establishment of firms such as the Farmers’ and Graziers' Cattle Insurance Company in 1844 and the Norfolk Farmers’ Cattle Insurance Society in 1849.
Plate glass insurance, particularly intended to protect shopkeepers from the high expense of repairing large shop windows, originated in France in 1829 with the establishment of La Parisienne. Its development in the UK was inhibited by the window tax levied until 1851. The first UK plate glass insurer, the Plate Glass Universal Insurance Company was not established until 1852.
Fidelity insurance was the earliest form of accident insurance successfully offered by corporate bodies in the UK. It was instituted in 1840 by the Guarantee Society, which was established to protect employers from fraud or embezzlement by staff. The society appears to precede the foundation of fidelity insurers elsewhere in Europe.
Personal accident insurance – the insurance against death or injury caused by accidents – developed during the railway age and originated in England with the successful establishment of the Universal Railway Casualty Compensation Company in 1848. It was followed a year later by the first Accidental Death Insurance Company, which insured against death and injury caused by accidents of all kinds, not limiting itself to those caused by railway travel.
The idea was taken to the United States by James G Batterson who established the Travellers in 1863 having got the idea after buying a Railway Passengers journey ticket in 1859. Three years later, personal accident insurance was introduced into Australia and France.
The insurance of steam boilers, or more accurately the insurance of their owners against loss of life or damage caused by boiler explosions, was another popular class of accident insurance. It appears to have originated in the UK, which, in the 1850s, contained the largest concentration of steam boilers in the world. The Steam Boiler Assurance Company, established in 1858, pioneered this class of insurance, followed by the Midland Steam Boiler Inspection and Assurance Company in 1862.
Employers’ liability insurance also appears to have originated in the UK. In 1880, in response to the Employers Liability Act, the Employers Liability Assurance Corporation was established to insure employers against losses caused by claims from employees injured at work. The company introduced this form of insurance to America six years later.
Burglary insurance originated at Lloyds in London in 1887. The first company to issue policies was the Mercantile Accident & Guarantee Company of Glasgow in 1889.
The fastest growing sector of accident insurance in the 20th century was motor insurance. It was introduced into the UK around 1896. Both the Scottish Employers’ Liability and Accident Assurance Company and the General Accident Fire & Life Assurance Corporation claim to have been the first in the field, although neither can provide evidence of policies issued at this date.
Early motor policies were based on those previously used for horse-drawn vehicles and the first motor insurance based on variable premiums depending on the horse power, age and type of vehicle was introduced by the Red Cross Indemnity Assurance Company in 1906.