History of Insurance Business

Insurance probably made a beginning in the ancient land of Babylonia In the 18th century B.C., Babylonian king Hammurabi developed a code of law, known as the Code of Hammurabi, which codified many specific rules governing the practices of early risk-sharing activities. For instance, the code dictated that traders had to repay merchants who financed trading voyages unless thieves stole goods in transit, in which case debts would be cancelled.

This was similar to the system of insurance known as bottomry which existed in Phoenicia in 1200 B.C.In this system, backers loaned money to merchants to finance voyages. Merchants offered their ships (the hull was known as the ship’s ‘bottom’) as collateral for such loans. When a trip succeeded, the merchant would pay the trip’s backer the original loan plus interest, the equivalent of a premium. If a ship went down on its voyage, the trip’s backer would cancel the merchant’s loan. The Greeks and Romans developed the earliest systems of life insurance. They formed societies which paid dues that went toward paying for the burial of members. Sometimes these societies also paid for the living expenses of deceased members’ families. During the Middle Ages (5th to 15th centuries A.D.), workers joined together in craft. Many guilds, particularly in England and Italy, provided benefits to workers and their families in the event of illness or death.


Insurance as we know it today took its shape in 17th century England. There was a place called Lloyd's Coffee House in London, owned by Edward Lloyd, where merchants, ship-owners and underwriters met to discuss and transact business. The Lloyd’s Act was passed in 1871 incorporating the members of the association into a single corporate body with perpetual succession and corporate seal. It extended from marine insurance to other insurance and guarantee business. Today, Lloyd's has become the world's best known insurance brand. It is commonly misunderstood that Lloyd's is an insurance company. Actually, it is a society of members, known as ‘underwriters’, both corporate and individual, who underwrite in syndicates on whose behalf professional underwriters accept risk. Thus, supporting capital is provided by investment institutions, specialist investors, international insurance companies and individuals.

Any insurer who wants to become a member of the association has to deposit a certain fee as security for the regular payment of his liabilities. The association will inquire about the financial position of the concern, business reputation and experience. The business is conducted by these insurers called underwriters, syndicates etc. Anybody desirous of taking insurance will approach the ‘underwriters’ and not the ‘association’. Each underwriter will be responsible for his business underwritten. Usually, the policy is underwritten by several underwriters and their share or portion is fixed individually. If there is claim on the policy, the insured gets the money from all the underwriters according to their respective shares. If an underwriter fails to pay, the amount is realized from the security taken at the time of enrolment from the underwriter. Lloyd’s as a corporation is never liable on any policy.

Lloyd’s brokers bring business to the market. The risks placed with underwriters originate from clients and other brokers and intermediaries all over the world. Together, the syndicates underwriting at Lloyd's form one of the world's largest commercial insurers and a leading reinsurer.

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