History of Insurance

Insurance which is a trillion-dollar economy now and growing, is an ecosystem where we can be assured of our life and assets to be covered in the hands of Insurance. Insurance had a fascinating journey in its past. Need and requirement of coverage for most of the items, our life and assets we have has actually originated a long time ago when people used to travel in bullock carts and ships to travel across the sea.
Let’s fathom in the history of insurance and delve ourselves in the gyaan of what really happened in past that made this a huge hit in modern age.

Well, earlier people used to cover themselves by helping each other. It was the goodwill of the society when someone suffers the loss of their house by any natural or unforeseen calamities, community members used to contribute and compensate for the loss of the ones who suffered from the perils. In this way, they helped each other. This is still in use presently in some backward villages and countries where the financial economy is still not grown.

Marine insurance History

Going further back, in the Babylonian era, around 3000 BCE where Chinese merchants used to lend loans for their ships while sailing in the Mediterranean Sea because some of their shipments used to get stolen in transit. The need for protection arise here. This is recorded in famous code of Hammurabi. This gave Babylonian traders protection against loss of cargo. And so, the first written insurance policy by the hand of King Hammurabi was coded in the obelisk monument.

Автор: Fritz Grögel - https://www.flickr.com/photos/frankfrei/6103406581/, CC BY-SA 2.0, Ссылка

After a thousand years, the concept of “General Average” was invented where merchants of Rhodes whose goods were being shipped together, pay a premium which was proportionally divided among the sailors. In case of any unforeseen accident while sailing like the ship being jettisoned during storm or ship sinking the amount was reimbursed to the ones who have taken the cover by paying the premium.

It was from Greece and Rome from where the concept of Health and Life Insurance originally started at around 600 A.D. where societies gathered a sum of money for funeral expenses of members upon death. These “benevolent society” were termed as Guilds. And there was a friendly society too, in England where people donated money for use in emergencies.

At the beginning of the 14^th century, the practice of Marine Insurance can be traced back to Northern Italy. The Italian Merchants were involved in trading with India through Constantinople and with European Countries. This was then, the beginning of Marine Insurance of modern times.

“Bottomry” was practiced widely across countries where ships were on the sail. Most of the shipowners took a loan from a group. After the voyage is successfully completed the loan with interest was refunded to the lenders. If, however, any of the ship was lost or sunk then the voyage then the lender loses their money. If only ship vessel is pledged for security then it is called a “bottomry bond”. And if both ship and cargo are pledged for security then it is called “Respondentia”.  In other words, it is like gambling on the racehorse. Lenders profits only when ships continue a safe voyage.

Why did the shipowners opt for it?

The answer is that shipowners needed a loan for emergency purposes like repairs of the vessel for the voyage.

This system became a failure when it was on the peak because fraud was happening a lot.

So, separate insurance contracts (not bundled with any loans) were invented in Genoa in the 14^th century. This proved to be useful in Marine insurance. A vast variety originated in post-renaissance Europe.

The Great Fire of London destroyed more than 13000 houses. The need to counter such events in the future was evolved with the first fire insurance company in the early 1680s. The Fire office was set up in London.

History of insurance Lloyd’s contribution

Lloyd's of London / CC BY

London was the evolving hub for trading in the 17^th century. With more and more market penetration, the supply and demand of various commodities from across the continents were booming. Most of these exports and imports were marine and the risk associated with that was also increasing.  In the late 1680s, Mr. Edward Lloyd opened a coffee house which was the meeting point of several traders, merchants, captains and ship owners. Concerned people used to get the latest news and gossip around the coffee house of London. Sooner it became insurance hub for cargoes and ships where Lloyd’s team used to underwrite such ventures. Today Lloyd’s of London is the largest and leading market for marine insurance.

History of Insurance in the United States

Benjamin Franklin contributed a lot to popularize insurance in the United States. It was Charles Town (Charleston) where first Fire Insurance company was formed in 1732.

History of Insurance in India

We can find mentions of the historical evolution of insurance from the ancient writings in manusmriti, dharmshastra, and arthashastra. This pointed out coverage on risks of fire, flood, and famine in particular.

It was England which transformed insurance in India basically into modern-day practices.

History of Life Insurance in India

Life insurance business in India was the establishment of Oriental Life Insurance Company in Calcutta which started in 1818. It failed in 1834 however. In 1829, Madras Equitable began transacting Life Insurance business in Madras Presidency. British Insurance Act was enacted in 1870. In the last 3 decades of this century, Empire of India (1897), Oriental (1874) and Bombay Mutual (1871) were started in Bombay Residency. Most of the companies which were foreign were giving tough competition to the Indian Insurance companies. It gave Indian Insurance companies a tough fight and did good business. Some of these foreign Insurance companies were Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance.

History of General Insurance in India

The General Insurance in India dates back to the Industrial Revolution in the west. Triton Insurance Company which was started in 1850 in Calcutta by the British was the first. It was in 1907, the company named Indian Mercantile Insurance Ltd was started, which dealt with all classes of General Insurance. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.

In 1938 the act was introduced called the Insurance Act, 1938 in which all rules were made to systemize the Insurance sector in India.

It was due to an ordinance passed by the Govt of India on 19 Jan 1956 which made nationalization of all Insurance Company in India. A total of 245 operating Life Insurance companies were absorbed into a single corporation named Life Insurance Corporation of India of which today we call it as simply LIC – “jeevan ke saath bhi, jeevan ke baad bhi” 😉

The general Insurance was also nationalized by Insurance Business (Nationalization) Act in 1972. All 107 operating General Insurance Companies were combined with effect from 1^st January 1973 to form GIC.

LIC and GIC was having a monopoly to operate several Life and Non-Life business across India, with GIC having four subsidiaries namely Oriental Insurance Company Limited, National Insurance Company Limited, New India Assurance, and United India Insurance Company. In December 2000, all four subsidiaries of GIC was detached from GIC to form Independent operating Insurance Companies and GIC were made as National Re-insurer.

 In 1993, RN Malhotra, the former Governor of India led a Committee to reform the Insurance Sector where the major point was to introduce privatization of the Insurance sector in the Indian Market. And so, in 1999 under the Malhotra committee IRDA (Insurance Regulatory and Development Authority) was formed to regulate and promote the orderly growth of insurance in the Indian Market. Not only this, but it was also constituted to regulate customer grievance cell and ombudsman to protect policyholder’s interest. As in December 2000 all General and Life Insurance business was opened to private players to conduct Insurance Business in India with FDI (Foreign Direct Investment) of 29 percent. But now it is increased up to 49 percent.

Today there are a total of 34 General Insurance Company in India including ECGC and Agricultural Insurance Company and 24 Life insurance companies operating in India to conduct Insurance Business Operations. India also has branches of GIC in Singapore and Kenya dealing majorly with re-insurance and other insurance-related operations.

Conclusion

Today Indian Insurance Market deals with varieties of insurance products to cover the policyholders from various risks. LIC is having a humongous asset value of Rs. 32 Lakh Crore. General Insurance Market is booming and more is to come as penetration in rural areas is required which is still, in many parts of the country widely uncovered.