About the section
Dr. Amanda Furman’s bi-monthly column is published in the Wall Street Journal and is published exclusively in the Globes. In this column, she says, she “searches the past for the origins of today’s world”
Dr. Amanda Furman is an American-British biographer and historian. She wrote five award-winning history books and served as a judge on the Booker Prize Committee and the US National Book Award
Living in a world without insurance, free from all those claim forms and high deductibles, can sound like heaven. But the worst thing about dealing with the insurance industry is trying to run a business without it. In fact, the basic principle of insurance – risk management to minimize liability against unknown perils – is one of the things that drove modern capitalism.
Trivia
1
What was the life insurance of ethnic groups who lived in the Achaemenid Kingdom in Persia (331-531 BC)?
2
What is the first insurance company established in the USA?
3
Which country has the highest number of life insurance policyholders?
For answers, scroll to the end of the article
Drowning insurance of the merchants of the kingdom of Babylon
The first merchants to face the problem of risk management were the Babylonians. Hammurabi’s laws from the 18th century BC show that they used a primitive insurance system known as “drowning insurance”.
Under these laws, merchants who took high-interest loans to finance the shipment of goods had the loans written off if the ships carrying the goods disappeared. This law benefited both the merchants and the creditors, who charged a premium of up to 30% on loans of this type.
https://www.youtube.com/watch?v=gM0zGhDQuOw
The first insurance scam in the days of ancient Athens
The Athenians, realizing that drowning insurance was a better protection against disaster than relying on the Oracle of Delphi, borrowed the idea into their marine insurance system. They had professional lending bodies, official inspections of ships and cargo, and fixed legal sanctions against those who broke the laws.
But alongside the first insurance plans came the first insurance scam. One of the oldest cases happened in Athens in the third century BC. Two men named Hegestros and Xenothemis took out drowning insurance to ship corn from the island of Syracuse (which was founded by Greeks and is now a port city in Italy) to Athens.
Halfway they tried to sink the ship, but their plan was thwarted by an alert passenger. The gastrtus jumped (or was thrown) from the ship and drowned. Xenothemis was taken to Athens to receive his punishment.
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The development of actuarial science in the Age of Enlightenment
In Christian Europe, insurance was not popular and was treated as a kind of bet – a bet against God. Even after Pope Gregory IX ruled in the 13th century that drowning insurance premiums were not considered a loan at interest, because of the risk involved in shipping, the industry failed to grow. The situation began to change following major disasters: the great fire in London in 1666 led to the expansion of the fire insurance industry, and the earthquake in Lisbon in 1755 led to the expansion of life insurance.
Only in the Age of Enlightenment, in the 17th and 18th centuries, did the Europeans’ concept of insurance change. Probability was subordinated to numbers and statistics instead of prayers. In addition to his contributions to the sciences of mathematics, astronomy and physics, Edmund Haley (1742-1656), who became famous thanks to the comet named after him, developed the foundations of actuarial science: the mathematical measurement of risks. This helped create parity between sellers and buyers of insurance. Until the end of the 18th century, anyone who did not insure himself was considered a fool. The Scottish economist and philosopher Adam Smith declared that doing business without insurance was nothing less than “arrogant contempt for risk.”
The doomsday of American insurance in the 20th century
But insurance only works if it can be trusted in times of crisis. For the modern American insurance industry, the deadly San Francisco earthquake of 1906 was a day of reckoning. The destruction caused the loss of insured property worth 235 million dollars – about 6.3 billion dollars in today’s terms. While many American insurance companies panicked, the British insurance company “Lloyd’s London” announced that each of its customers would receive their full claim within 30 days. This quick action saved lives and ensured the business could continue to exist.
That’s why we pay the premium: we can’t predict tomorrow, but we can prepare for it.
Trivia answers
1. The rulers received annual gifts from the ethnic groups, and these officially obliged the rulers to protect them.
2. “Philadelphia’s Contribution”. It was founded by the American statesman Benjamin Franklin in 1752 and is considered the oldest insurance company in America.
3. As of 2020 Hong Kong. In the last place – Mongolia. Israel is in 22nd place.