06 August 2021

Insurance’s Background

Insurance means, protection from financial loss. Also, it is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

It begins bottomry contracts were known to merchants of Babylon as early as 4000–3000 Before the Common Era.

Started under a bottomry contract, loans were granted to merchants with the provision that if the shipment was lost at sea the loan did not have to be repaid. The interest on the loan covered the insurance risk. Ancient Roman law recognized the bottomry contract in which contract of the agreement was drawn up and funds were deposited with a money changer.

Furthermore, an entity that provides insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter. A person or entity who buys insurance is known as an insured or as a policyholder.

The evolution of insurance traces the development of risk insurance, particularly for cargo, property, death, automotive accidents, and medical treatment.

In addition, the insurance industry helps to eliminate risks, spreads risks from individuals to the greater community, and providing long-term finance for both the public and private sectors.

In exchange for the insurer’s pledge to repay the insured in the case of a covered loss, the insured assumes a guaranteed and known – typically minor – loss in the form of payment to the insurer.

The loss can be financial or non-financial, but it must be reducible to financial terms, and it usually entails an insurable interest formed by ownership, possession, or a prior relationship.
The basic concept of insurance distribution of risk among many people is as old as humanity itself.

Countries and their citizens need to spread risk among large numbers of people and to move risk to entities that can handle it. This is how the insurance industry emerged.
If we consider Sri Lanka Insurance, it was incorporated by a special act of Parliament in 1961 also formed by nationalizing the insurance industry which was run by various local and foreign private companies.

Insurance became more sophisticated in the 17th century, and specialized varieties developed.

Type of Insurances Beginning

Property insurance

Property insurance is insurance that protects the physical objects and equipment of a business or house against loss due to theft, fire, or other disasters.

Generally, property insurance covers the risks of all the damages caused by fire, theft, wind, smoke, snow, lightning, etc.

As we know it today, property insurance can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses.

Several attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established.

The first fire insurance company in the world, the “Hamburg Fire Office”, and the oldest existing insurance enterprise available to the public, having started in 1676.

In the wake of this first successful venture, many similar companies were founded in the following decades. Initially, each company employed its fire department to prevent and minimize the damage from conflagrations on properties insured by them. They also began to issue Fire insurance marks to their customers.

These would be publicly posted above the property’s main door, allowing the insurance provider to positively identify residences that had purchased insurance from them.

Business insurance

Business insurance protects companies from financial losses caused by occurrences that occur in the normal course of business. there are many types of insurance for businesses including coverage for property damage, legal liability and employee-related risks.

Companies assess their insurance requirements based on potential risks, which can differ depending on the sort of environment in which they operate.

Accident Insurance

Accident insurance pays you a one-time lump-sum payment that you can use as you want for certain accidents like concussions or broken bones. It’s a supplemental plan, which means it’s meant to be used in addition to, not as a replacement for, normal health insurance.

Life insurance

The first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office was the first life insurance company in the world., founded in London in 1706 by William Talbot and Sir Thomas Allen.

Between 1787 and 1837 more life insurance companies were started.

The original life insurance plan required each member to pay a fixed annual payment per share on one to three shares, depending on their age, which ranged from twelve to fifty-five years old.
At the end of the year, a portion of the amicable contribution was divided among the wives and children of deceased members and it was in proportion to the number of shares the heirs owned.

The first life table was written in 1750, necessary mathematical and statistical tools were in place for the development of modern life insurance.

The first actuarial appraisal of liabilities was performed in 1776, and the first reversionary bonus (1781) and interim bonus (1809) were awarded to its members.

It also used regular valuations to balance competing interests. Sought to treat its members equitably and the Directors tried to ensure that the policyholders received a fair return on their respective investments.

Reinsurance

The process of insurers transferring portions of their risk portfolios to other parties through some type of agreement to lessen the chance of paying a big obligation arising from an insurance claim is known as reinsurance. The ceding party is the party that diversifies its insurance portfolio.

Life reinsurance was taken up by Munich Re in 1888-1889. In 1894, Egid, a Swedish company, offered reinsurance on a risk-premium basis (a yearly renewable term for the net amount at risk) there are many reinsurances premiums.

There is more verity insurance nowadays, such as Auto Insurance, Gap Insurance, Health Insurance, Income Protection Insurance, Casualty Insurance, Burial Insurance.

Final Conclusion

Finally, we can realize that Insurance has begun especially to eliminate the risks as nowadays,
From our Ancestors, people are still finding ways to eliminate the risk and cover the loss, which is called Insurance, as a trending technology playing a great role in the cooperate world.

We are informatics, being a pioneer in the IT software industry, providing the best solutions in the insurance industry, tech consulting, and more! Get in touch with us today to book your appointment!

Written by Siththy Waseema