Almost 4,500 years ago,
in the ancient land of Babylonia, traders used to bear risk of the
caravan trade by giving loans that had to be later repaid with
interest when the goods arrived safely. In 2100 BC, the Code of
Hammurabi granted legal status to the practice.
That, perhaps, was how
insurance made its beginning.
Life insurance had its origins in
ancient Rome, where citizens formed burial clubs that would meet the
funeral expenses of its members as well as help survivors by making
As European civilization
progressed, its social institutions and welfare practices also got
more and more refined. With the discovery of new lands, sea routes
and the consequent growth in trade, Medieval guilds took it upon
themselves to protect their member traders from loss on account of
fire, shipwrecks and the like.
Since most of the trade took place
by sea, there was also the fear of pirates. So these guilds even
offered ransom for members held captive by pirates. Burial expenses
and support in times of sickness and poverty were other services
offered. Essentially, all these revolved around the concept of
insurance or risk coverage. That's how old these concepts are,
In 1347, in Genoa, European
maritime nations entered into the earliest known insurance contract
and decided to accept marine insurance as a practice.
The first step...
Insurance as we know it today owes
its existence to 17th century England. In fact, it began taking
shape in 1688 at a rather interesting place called Lloyd's Coffee
House in London, where merchants, ship-owners and underwriters met
to discuss and transact business. By the end of the 18th century,
Lloyd's had brewed enough business to become one of the first modern
Insurance and Myth...
Back to the 17th century. In 1693, astronomer Edmond Halley
constructed the first mortality table to provide a link between the
life insurance premium and the average life spans based on
statistical laws of mortality and compound interest. In 1756, Joseph
Dodson reworked the table, linking premium rate to age.
The first stock companies to get into the business of insurance were
chartered in England in 1720. The year 1735 saw the birth of the
first insurance company in the American colonies in Charleston, SC.
In 1759, the Presbyterian Synod of
Philadelphia sponsored the first life insurance corporation in
America for the benefit of ministers and their dependents.
However, it was after 1840 that
life insurance really took off in a big way. The trigger: reducing
opposition from religious groups.
The growing years...
The 19th century saw huge developments in the field of insurance,
with newer products being devised to meet the growing needs of
urbanization and industrialization.
In 1835, the infamous New York
fire drew people's attention to the need to provide for sudden and
large losses. Two years later, Massachusetts became the first state
to require companies by law to maintain such reserves. The great
Chicago fire of 1871 further emphasized how fires can cause huge
losses in densely populated modern cities. The practice of
reinsurance, wherein the risks are spread among several companies,
was devised specifically for such situations.
There were more offshoots of the
process of industrialization. In 1897, the British government passed
the Workmen's Compensation Act, which made it mandatory for a
company to insure its employees against industrial accidents.
With the advent of the automobile,
public liability insurance, which first made its appearance in the
1880s, gained importance and acceptance.
In the 19th century, many
societies were founded to insure the life and health of their
members, while fraternal orders provided low-cost, members-only
Even today, such fraternal orders
continue to provide insurance coverage to members as do most labour
organizations. Many employers sponsor group insurance policies for
their employees, providing not just life insurance, but sickness and
accident benefits and old-age pensions. Employees contribute a
certain percentage of the premium for these policies.
Insurance in India can be traced back to the Vedas. For instance,
yogakshema, the name of Life Insurance Corporation of India's
corporate headquarters, is derived from the Rig Veda. The term
suggests that a form of "community insurance" was prevalent around
1000 BC and practised by the Aryans.
Burial societies of the kind found
in ancient Rome were formed in the Buddhist period to help families
build houses, protect widows and children.
Bombay Mutual Assurance Society,
the first Indian life assurance society, was formed in 1870. Other
companies like Oriental, Bharat and Empire of India were also set up
in the 1870-90s.
It was during the swadeshi
movement in the early 20th century that insurance witnessed a big
boom in India with several more companies being set up.
As these companies grew, the
government began to exercise control on them. The Insurance Act was
passed in 1912, followed by a detailed and amended Insurance Act of
1938 that looked into investments, expenditure and management of
these companies' funds.
By the mid-1950s, there were
around 170 insurance companies and 80 provident fund societies in
the country's life insurance scene. However, in the absence of
regulatory systems, scams and irregularities were almost a way of
life at most of these companies.
As a result, the government
decided to nationalize the life assurance business in India. The
Life Insurance Corporation of India was set up in 1956 to take over
around 250 life companies.
For years thereafter, insurance
remained a monopoly of the public sector. It was only after seven
years of deliberation and debate - after the RN Malhotra Committee
report of 1994 became the first serious document calling for the
re-opening up of the insurance sector to private players -- that the
sector was finally opened up to private players in 2001.
The Insurance Regulatory &
Development Authority, an autonomous insurance regulator set up in
2000, has extensive powers to oversee the insurance business and
regulate in a manner that will safeguard the interests of the