History of the Life Insurance Industry
In his book "Against the Gods," Peter Bernstein proposes that "the revolutionary idea that defines the boundary between modern times and the past is the mastery of risk." This ability to elucidate, quantify and even make reasonable predictions for the varied dangers we face is the foundation behind the birth and growth of the life insurance industry, an enterprise reliant on an understanding of the probabilities associated with risk and risk management.
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Probability, Statistics and Life Tables
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Risk, and the use of probability to quantify it, have been alien concepts throughout most of mankind's history. Girolamo Cardano, a 16th century Italian physician and a prolific gambler, hinted at the first, modern inklings for probability in his book "Liber de Ludo Alae." It would take other great minds, such as Blaise Pascal and Pierre de Fermat, to provide the systematic foundations of mathematical probability familiar to us today. John Graunt, and the later scientist and astronomer, Edmund Halley, combined this fledgling math with statistics of deaths to construct the first "life tables," predecessors of actuarial tables essential to the modern life insurance industry.
Lloyd's Coffee House
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In a world absent the Internet, or even newspapers, the popular coffee houses that dotted London's landscape during the late 1600s served as hubs for gossip and business alike. Lloyd's Coffee House, first opened by Edward Lloyd in 1687, was one that became a popular hotbed for seafaring captains and the traders who hired them. There, too, were men willing to insure almost anything against disaster, including a captain's ship or a sailor's very life. These insurers were known as "underwriters" because they would bravely place their signature underneath an insurance contract's written terms.
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Insurance In the American Colonies
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In 1735, the Pennsylvania Gazette received a missive by an "old citizen" who was concerned over recent fires in Philadelphia. Titled "Protection of Towns from Fire," the letter wisely advised that "an ounce of prevention is worth a pound of cure." Still distressed at the risks posing his fellows, the old citizen went on to form the first Pennsylvanian fire department and The Philadelphia Contributionship, a fire insurance company that also helped inspire the mutual life insurance industry of the 1800s. These efforts combined to earn him the moniker, "Father of American Insurance," and co-incidentally, he is also sometimes recognized as American Founding Father, Benjamin Franklin.
The Modern Life Insurance Industry
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Estimates by IFSL Research, a non-profit financial-services organization based in the United Kingdom, suggest that premiums collected by life insurance companies neared $2.5 billion worldwide during 2008. Though the life insurance industry has evolved into a sophisticated, global industry, it retains actors from even its earliest years. Members still underwrite insurance contracts on the Lloyd's of London insurance marketplace, now known as Lloyd's organizations. Elements from early American insurance companies also continue to thrive in one form or another, such as the Philadelphia Presbyterian Ministers' Fund, a life insurance company established in 1759 and operating until 1990, before finally merging into Nationwide Mutual during 2002.
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References
- Photo Credit lloyds of london image by david hughes from Fotolia.com
