Origin of Insurance

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 some payments.

As European civilization progressed, new sea routes for trade, social institutions and guilds, in particular with many welfare and protective measures were also introduced. With increased protection that revolved around the concept of insurance, trade flourished.

In 1347, in Genoa, European maritime nations entered into the earliest known insurance contract and decided to accept marine insurance as a practice. Insurance owes its existence to 17th century England. In fact, it began taking shape in 1688 at Lloyd's Coffee House in London, where merchants, shipowners and underwriters met to discuss and transact business. By the end of the 18th century, Lloyd's had enough business to become one of the first modern insurance companies.

In 1693, astronomer Edmund 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, James Dodson a British mathematician, actuary and innovator in Insurance Industry 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. 19th century saw huge developments in the field of insurance. Two years after the infamous New York Fire in 1835, Massachusetts became the first state to insist by law on fund reserves to meet emergencies. The great Chicago fire of 1871 caused huge losses which brought in the practice of reinsurance, wherein the risks are spread among several insurance companies, in such situations.

In 1897., the British government passed the Workmen's Compensation Act, ensuring employees against industrial accidents. With the advent of the automobile, public liability insurance, which first maqe 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. 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. 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 over them. The Insurance Act was passed in 1912. followed bv a detailed and amended Insurance Act of 1938 that looked into investments, expenditure and management of these companies' fund.

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 nationalise the life assurance business in India. The Life Insurance Corporation of India was set up.in 1956 to take over around 250 life insurance 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 reopening up of the insurance sector to private players and the sector was finally opened up to private companies in 2001.

Insurance Regulatory & Development Authority (IRDA), 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 insured.

Today, In India there are more than 15 Private Insurance Companies apart from Public Insurance Companies. Insurance Penetration in India is about only 2% compared to other countries . on an average of about 10%.