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Who invented insurance and why?

who invented insurance

It all started with a cup of coffee

Imagine a world without insurance. No shipping and travel, no construction, no factories and offices, no doctors or other professional consultants, no motoring - potentially even no home ownership. Insurance exists because people need security. Without insurance there would be far less risk-taking. And without any risk-taking there would be no businesses and no innovation. Put simply, insurance is what enables the modern world to get on with life.

The idea of insurance dates back more than 4,000 years to Babylonian merchants. They wanted to protect their goods during transit from, among other things, bandits and bad weather. However, Lloyd's of London is credited with inventing the modern concept of insurance, which first began in Edward Lloyd's Coffee House (hence the name) in 1688.

A golden age

The practice of underwriting (the act of issuing insurance policies) emerged in the same London coffee houses that operated as Britain's unofficial stock exchange. In the late 1600s, trade routes between the New World and the Old were opening up, colonies were being established, and exotic goods such as silk, cotton and tea were ferried back. Edward Lloyd's coffee house became the meeting place for merchants, ship owners and others seeking


Money from many to pay the few

Where there are many similar risks, insurers can predict fairly accurately how many losses there will be. In fact, only a few of all those insured suffer a loss.

The insurer offers protection by grouping together lots of people exposed to the same risk. They collect money (a premium) from each one to create a fund (a pool) to pay the few who do suffer losses.

Insurance in the news

Insurance enables all sorts of industries to carry out business while mitigating risks. High profile examples include celebrity cover, such as body parts; David Beckham's legs are reputedly insured for $70million, events insurance; such as in the case of the cancelled Michael Jackson concerts, or terrorism insurance; for which the 2012 London Olympic Games has high levels of cover.

Keeping up with the world

As new risks emerge, demand for insurance protection soon follows and the industry has learned to develop rapidly. For example, gradually extending cover under existing policies such as home insurance to include accidental damage cover as standard. In other cases insurance has evolved to meet specific technological advances in areas such as aviation, communications satellites, social networking and new technologies.

Category: Insurance

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