Thanking Ben Franklin for the lightning rod, bifocals and.....insurance?

by: Shannon Stockdale

You probably wonder a lot of things about insurance. Where do your premium payments go? Why is your premium the amount that it is? Ever wonder where this idea of insurance came from? Who started this industry and why?

Most of us are accustomed to our modern day monetary based industry but the idea of insurance began and developed from the ideal of barter and trade. It wasn’t about money.  Those folks most likely did not refer to it as “insurance.”  It was an agreement for protection.  If something bad happened to you and your family someone would be there to help you get back on your feet. The cost was no matter, only the end result.

In the primitive insurance years, agreements of mutual aid were common.  This meant if a family’s house was destroyed the neighbors would commit to aide the owners in rebuilding.  This type of insurance still exists today in areas of the world without a modern economy or financial system. 

Insurance means risk management.  When purchasing a policy you retain a certain amount of risk in the deductible you choose.  By saying you will only be accountable for $500 (your deductible) should you suffer a loss to your home that will cost $150,000 to rebuild you are managing your risk by transferring $149,500 of that loss to the insurance company.   

In the 3^rd millennia BC Chinese merchants traveling dangerous waters would manage their risk by splitting up their inventory across many boats.  This decreased their risk of losing their entire inventory should one boat capsize.   This is a very early example of personal risk management.

It was recorded in the Code of Hammurabi in 1750 BC that the Babylonians developed a system of insuring the loss of shipments that was connected to the merchant’s loans.  If the merchant had received a loan to fund his shipment he could pay an additional premium to the lender.  This premium was exchanged for the lender’s guarantee that the loan would be void if the shipment was lost or stolen at sea.  I wonder what that premium may have been! 

In Ancient Persia it was recorded that the Achaemenian monarchs were the first to insure their people.  They practiced a procedure of registering the insuring process with the governmental notary offices.  I was surprised to learn that this form of insurance was tied into politics.  It began with gifts being given to the monarch.  When a gift was given that was valued at more than 10,000 Derrik (Archaemenian gold coin) the gift was registered with the notary office.  What was the purpose of the register? And what does insurance have to do with gifts?  Well, it was understood that if the gift giver was in trouble or needed assistance in the future the monarch and the court would come to his aide.  This would include events such as a large feast, marriage, building projects etc. Interesting!

In London insurance was developed in the early 17^th century. The first property and life insurance contract was discovered in the will of an English colonist Robert Hayman.  This will included two “policies of insurance” taken out with the diocesan Chancellor of London, Arthur Duck.  The value was 100 pounds each.  One policy insured the safe arrival of Hayman’s ship in Guyana and the other stated: “one hundred pounds assured by the said Doctor Arthur Ducke on my life.”  This will was signed on November 17^th 1628 but took five years to be proven. 

It was the Great Fire of London that seemed to change insurance “from a matter of convenience into one of urgency” stated Sir Christopher Wren.  Wren included a site for “the Insurance office” in his new plan for London in 1667.  In 1666 a fire devastated more than 13,000 homeowners.  Finally, in 1681 after a number of failed attempts Nicholas Barbon and eleven of his associates established the first fire insurance company in England.  It insured against fire and was called the “Insurance Office for Houses.”  Originally it insured 5,000 homes.

In the United States the first insurance company was established in Charles Town (now known as Charleston) in South Carolina.  In 1732 Benjamin Franklin became a spokesperson for the standard practice of insurance.  In 1752 he founded Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.  Franklin’s company was the first to establish underwriting guidelines by refusing to insure certain properties where the risk of loss was too great.  This included all houses made of wood. This company was also the first to make contributions toward the prevention of fire. These two practices have been studied and developed since 1752.  Both underwriting and consumer education are a key to operating a financially sound insurance company that is ready and able to pay it’s policy holders for losses when they occur.  

Ben Franklin, the man responsible for bringing us bifocals, a glass armonica, the lightning rod, an odometer, and the wood stove (called the Franklin stove) was our industries first advocate and a key player in developing our modern insurance practices.