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Insurance in an economic term that is defined as a form of risk management that is used to be prepared against a greater economic loss in the future. The equitable transfer of the risk of a loss is insurance and the transfer occurs between two entities. Risk management is a practice to control risk and to manage the losses that might occur in the future. This is the paper that shall be briefly discussing the history of insurance along with the needs of insurance that has been realized in the past.
History of insurance
History of insurance outlines the development of the laws in a market to ensure that there is lesser risk with the economies. The beginning of the human society is marked with the beginning of the insurance. Chinese and Babylonians practiced the concept of insurance since the 2nd and the 3rd millennia BC (Baldwin, 2001). Achaemenian monarchs were the first ones who started insuring there people and the insurance registration were carried out in the government offices. The insurance tradition was followed every Nowruz year, which is also known as the beginning of every Iranian year. The Greeks and Romans established the idea of health and life insurance in 600 A.D when the benevolent societies were created which paid for the funeral expenses. The Romans first introduced the concept of burial insurance. In the 14th century, the insurance contacts were invented in Genoa (Vollbrecht, and Organization for Economic Co-operation and Development, 2001).
Contemporary insurance goes back to the Great Fire in London in 1666, that destroyed 13,200 houses leading Nicholas Barbon start insurance on buildings. In the 19th century, the concept of accident insurance came into life. the first insurance company in America was created in 1732 in South Carolina while health insurance policies were first instituted in the beginning of the 20th century. It has been realized that there is a need for the federal and regulatory systems for the insurance in order to strengthen the policies.
What is insurance
In terms of law and economics, the insurance is a form of risk management that helps in making preparations in case of the major economic losses in the future. There is a relocation of risk between two individuals or corporations in exchange of a payment and the indemnity is thought to be a minor deficiency as compared to the future potentially significant economic loss. Insurer, the company selling the insurance makes sure that the greater number of clients is increased and the clients realize the importance of insurance (Rubin, 2000).
Insurance on the global scale
In the year of 1759, it has been observed that Presbyterian Synod of Philadelphia sponsored the first insurance company in Europe. Massachusetts was the first state to start the insurance by law in 1837 and to maintenance of the reserves. The great Chicago fire emphasized the need of insurance in 1871 (Wagner, and Baker, 2005). These fires struck the denser cities that caused the greater losses. The Workmen’s Compensation Act of 1897 required British organizations to insure their employees so as to provide them the security against any work-related accidents. Since the 19th century, it has been seen that there is an increase in the interest of the states to ensure that the health insurances are provided to the employees. The need has been realized since the 1980s when there were many natural disasters causing major damages in the cities.
In the 17th and 18th century, the British economy was growing. With an increase in the commerce, there was an increase in risk. All the growing companies in this case were chartered with the insurance companies as all the progress was going against the insurance industry. Thereby the first American insurance company was founded in South Carolina and it was seen that the insurance business flourished in Philadelphian and New York afterwards (OECD, 2002).
In the pages of history, it can be seen that the main need of insurance was realized by the major economic damages to the people in the states and the places that were damaged by great catastrophic disasters. In addition to this the employees who were injured during the industrial accidents were also a part of the concern thereby it was realized that the risk management is necessary which lead to an increase in the aware best of the insurance companies on the global scale.
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