Throughout history, mankind has not known what the future would bring and the unpredictability created a sense of vulnerability; we needed to find a way to help us to cope with such uncertainty in our lives. This need for protection against the possibility of catastrophic losses gave rise to the concept of insurance.
Gradually, the concept of insurance evolved and came to be understood as a contract that offered the purchaser protection against financial loss due to a specific incident. Since the risk of financial loss was to be spread among a large group of people, the extent of financial loss, in the event a mishap occurred, became less devastating to individuals. Unfortunately, history reveals that not everyone understood this basic principal. Consequently, policy purchasers had to be made to understand that the purpose of insurance was restoring the financial position of the insured in the event they incurred a loss, and having insurance was not to be considered a method of making a profit.
Although some people have made comparisons between purchasing insurance and gambling, the only real similarity is, both entities consider probability and financial odds over risks. However, the intention of gambling is not the reason people purchase life insurance; instead, the history of some forms of insurance, such as burial insurance, shows that the buyer is unselfish, and its purchase is synonymous with the emotion of caring. Indeed, although there are other benefits for the purchaser while alive, historically, the major focus on the act of buying insurance implies making provision for insuring the protection of those who may be financially dependent, such as life-partners and/or children.
The desire for a peaceful state of mind, free from worrying over the things we cannot control has existed in civilizations for thousands of years. For example, according to historic accounts, in China, as early as 5000 BC, when ships were commonly lost at sea, farmers made use of boats as a means of shipping their crops to purchasers or to markets where their produce was to be put on sale. Without a doubt, accidents occurred, boats sank, the harvests were lost, and the farmers faced financial devastation. These farmers, using common sense, conceived the idea of not "putting all their eggs in one basket," or in this case, boat. Instead, farming families relieved their anxieties about their shipments by using multiple boats to ship their merchandise. Therefore, this primitive form of insurance was utilized for situations where one or more shippers could avoid being financially buried by the catastrophic consequences that occurred whenever a boat or boats sank. Because of the distribution of the merchandise, the loss would have been minimized. Moreover, according to history, during the 13th century, the ancient Babylonians also devised a system that protected both the merchants and their customers against theft or loss, and this is one of the earliest recorded examples of insurance. The system involved wealthy people guaranteeing that they would pay for the loss of any ship that might sink, in exchange for receiving an agreed amount of money from ship owners.
The history of both life insurance and health insurance goes all the way back to ancient Rome when a system was devised to assist the families of injured or ill members, or if family members were in need of financial assistance to pay for the burial of their loved one. This basic form of insurance coverage was utilized by poor- free people, slaves, members of the military and average citizens who were not wealthy enough to be sure they could afford to be buried when they died. The people formed and joined burial clubs called Fratres that originated with the intention of paying for the funerals of those people who belonged to the clubs, and financially helping surviving family members. The club members met every month and at festival times. During their meetings, it was expected that the insured would pay fees towards their continued membership. Other rules required that new members, in addition to paying an entrance fee, would have to contribute an agreed amount of wine to the group. And during the meetings, after performing sacrifices, everyone shared a meal that presumably included the donated beverage. There were also other stipulations:
For example, members who hadn't paid their dues for six months were not permitted to make claims for burial. Moreover, members who committed suicide could not be buried in the same cemetery as the other residents of the community, and their survivors could not make claims against the burial clubs for financial assistance.
The history of organized insurance dates back to medieval Europe. During the 14th century, commerce was a growing entity and trade began to expand. As a result, it was common for traders to have marine insurance. However, the concept of insurance, as we understand it today, began in England in the late 1600's where it became popular for traders. Eventually, traders, along with ship owners and merchants, became the organizers. These business people met at The Lloyds Coffee House, which is a predecessor to the famous Lloyds of London. Of course, Lloyd's of London saw the growing need for marine insurance and became one of the first established insurance companies. Ship owners and "underwriters" or backers who met to formulate insurance contracts conducted the transactions. The origin of the word, "underwriter" is Italian, and is derived from the ancient practice of signing contracts for marine insurance in order to share in the profit or loss of a venture. The participants in the contracts signed their names underneath the contract, writing at the same time the amount of the risk that would be assumed by each businessman.
Later, the concept of insurance traveled across the Atlantic, to the new world, where an understandingly insecurity about their safety was commonplace. The origin of specific insurance coverage, including fire or burial, was conceived as the need arose. The first American insurance company, which only provided fire insurance, was established in Charleston, South Carolina in 1732. And the first life insurance company in the United States began in 1735, for the benefit of the families of Presbyterian ministers. However, the insurance movement was growing, and in 1752, Benjamin Franklin was instrumental in helping insurance, especially fire insurance, become commonly established. Soon, other insurance companies were founded. Between 1787 and 1837, more than two-dozen life insurance companies were started, but less than six of them prospered and survived. During these times, anyone could purchase an insurance policy on anyone else, even a complete stranger. As a result, the strangers being insured sometimes wound up murdered. Therefore, a governing rule of insurance stated that the purchaser of the policy must have a legitimate interest in the preservation of the insured.
Insurance eventually evolved to where its basic premise came to be thought of as spreading the risk among others, so that individuals could trust that they or their survivors would be financially compensated in the event of loss.