Ancient world Insurance
In some sense, we can say that insurance dates back to early human society. We know of two types of economies in human societies: natural or non-monetary economies (using barter and trade with no centralized nor standardized set of financial instruments) and monetary economies (with markets, currency, financial instruments and so on). Insurance in the former case entails agreements of mutual aid. If one family’s house gets destroyed, the neighbors are committed to helping rebuild it. Granaries embodied another early form of insurance to indemnify against famines. These types of insurance have survived to the present day in countries or areas where a modern money economy with its financial instruments is not widespread.
The first methods of transferring or distributing risk in a monetary economy were practiced by Chinese and Babylonian traders in the 3rd and 2nd millennia BC, respectively. Chinese merchants traveling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel’s capsizing. The Babylonians developed a system that was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender’s guarantee to cancel the loan should the shipment be stolen or lost at sea.
Achaemenian monarchs in Ancient Persia were presented with annual gifts from the various ethnic groups under their control. This would function as an early form of political insurance, and officially bound the Persian monarch to protect the group from harm.
At some point in the 1st millennium BC, the inhabitants of Rhodes created the ‘general average’. This allowed groups of merchants to pay to ensure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage.
The ancient Athenian “maritime loan” advanced money for voyages with repayment being canceled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of the year, implying intuitive pricing of risk with an effect similar to insurance.
The Greeks and Romans introduced the origins of health and life insurance c. 600 BC when they created guilds called “benevolent societies”, which cared for the families of deceased members, as well as paying funeral expenses of members. Guilds in the Middle Ages served a similar purpose. The Jewish Talmud also deals with several aspects of ensuring goods. Before insurance was established in the late 17th century, “friendly societies” existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.