The Origins Of Insurance

A Modern Business with Ancient Links 

Did you know that some of the earliest evidence of insurance at work can be traced back to the merchants of China?

It’s true. While it wasn’t called ‘insurance’ back then, it was nevertheless an early example of mankind mitigating the dangers of everyday life by spreading the risk – which is what insurance is still all about thousands of years later.

China in the 3rd and 2nd millennia BC was a land of merchants, but life was dangerous and uncertain, so when these business people needed to get their goods to market, the quickest method was to put them on a boat and send them down the river to the marketplace they were to be sold at. The trouble was, rough weather and pirates conspired to make this a risky proposition – not every boat made the journey without mishap. Now, the loss of 1-2 boats out of a fleet of dozens may not have been catastrophic to the overall economy, it could be to the merchant who lost all their goods on one of the boats that sank or was robbed. The merchants learned from their mistakes though and concluded that rather than chartering an entire boat for their goods, they were better off spreading their goods over many boats in partnership with other merchants. That way, the loss of any one ship would not wipe out any individual merchant because they had no more than a fraction of their goods on any one boat at any given time.

So, you could take the risk of putting all your eggs in one basket, so to speak, by putting all your goods on one boat and then pray it gets through. Or you could spread your risk - so, for example, if you have 100 packages and you put 10 on each boat, the loss of any one boat will cost you no more than 10% of your total consignment – not great, but not crippling to you.

Fast forward a few hundred years to the coffee houses on London in the 1700’s and the origins of modern insurance were formed as businesses men would gather to arrange insurance contracts on merchant ships crossing the globe. These started as very speculative affairs, but over time these people became more savvy at assessing risks and setting appropriate premiums for the risks they were taking on – the rest, as they say, is history.