insurance

insurance means securing payment of a sum of money in the event of loss or damage to property or life (in the latter case sometimes referred to as assurance) by payment of a premium. An embryonic form of life assurance existed during the Middle Ages in monastic institutions as a way of raising money. A wealthy person could purchase a corrody, which provided for either care in the monastic community or cash at agreed intervals. The sums paid depended on the donor and were not a calculated life risk.

Property insurance developed in response to the hazards faced by medieval exporters, for example losses from shipwreck, piracy, or theft. The rules of the Lombards, Italian merchants, formed the basis for spreading risks. They devised a system of partnerships which sent their produce in several ships with all partners undertaking to bear a portion of any loss but sharing in the profits of the venture.

Such insurance provided for particular combinations for specific ventures. More general cover emerged in the late 17th cent. when the expansion of overseas trade encouraged the development of a market in insurance. At this time Edward Lloyd's coffee-house became a meeting-place for marine insurers, although they accepted other risks. As other insurers of the time, members of Lloyd's offered insurance on terms of the unlimited liability of ‘names’, each name meeting the full cost of any loss personally. Most insurers moved towards limited liability by forming companies under the companies Acts of the mid-19th cent. However, Lloyd's names continued with unlimited liability until 1993 when, because of unprecedented losses, their council admitted limited liability companies into syndicates to underwrite risks. Insurers invested premiums in loans and mortgages, for example, to landowners enclosing land in the 18th cent. and, more recently, in stocks and shares and in property developments.

Calculating risks required the systematic collection and analysis of appropriate data. Early in this field were life assurance companies selling annuities. Particularly successful was the Equitable Company, founded in 1762, which drew upon an analysis of mortality rates for Northampton. Profitability depended on accurate data and life assurance companies were active supporters of population censuses initiated by the government. In contrast with the commercial insurance companies, many assurance companies were organized as mutual societies, distributing all profits to members after administrative costs had been met. Commercial insurance against fire and other risks also came to be based on systematic knowledge of the incidence of loss. In towns and cities largely built of wood the risks of fire were high. The Great Fire of London (1666) hastened the development of insurance against fire. The first company to offer fire insurance was that of Nicholas Barbon's Insurance Office for Houses in London, established in 1681. By the early 18th cent. other companies insured housing and business premises. These companies encouraged positive precautions to prevent fires by the design and construction of buildings, and to deal rapidly with conflagrations. Companies such as the Sun Insurance Office, founded in 1710, had private fire brigades in the largest towns, and its badges can still be seen on some old buildings.

During the 19th cent. insurance cover became available to a larger proportion of the population. Friendly societies and industrial assurance companies collected premiums weekly from mainly artisan subscribers. They paid out sums to meet losses of earnings and health care expenses arising from sickness or injury at work. It was also possible to insure against the cost of funerals and to provide for the subscriber's family.

Insurance increased during the 20th cent. to meet an ever widening range of risk. Two major areas of insurance are outstanding. First is insurance associated with travel and vehicles. Their importance is demonstrated by the fact that insurance against third party risk became a legal requirement in 1930. Second is the growth of a competitive market in pension provision and a shift from occupational to personal pensions.

Ian John Ernest Keil