A Short History of Insurance or ... How Long Have They Been Getting Away with This?

Robert D. Wurtz

When Terri Courtney of WCA approached me to write an article for the sesquicentennial issue of Wisconsin Counties magazine on the history of insurance, I felt honored but a little taken aback. I assumed that the theme of the magazine had to be history because there is no duller subject than a history of insurance. But for the two or three of you, that, like me, voraciously read history, any history, here goes.

Whether we like it or not, insurance in one form or another has been with us for about as long as civilization. Probably, only the truly oldest civilized professions, farming, soldiering and governing, have been around longer. Yes, there were insurers before there were attorneys, at least in the professional sense. This is because, after farming, soldiering, and governing followed commerce. People had to sell their wares and goods. As civilization grew and took hold, people found that folks in the city across the lake (or down the river as the case may be) had some neat stuff they did not have. It did turn out they did grow a special grain that the other folk's soil did not support well. They could trade some of their stuff for some of the other folk's stuff! What a great idea! (Some of their soldiers might think they could beat the other soldiers and just take all they wanted but some of the neat stuff was handcrafted. Trade was the easiest and surest way to get it.)

Earliest civilization, that has left any identifying marks that we can find, grew up in the land between the Tigris and Euphrates rivers six to seven millenia ago. Babylonian records from no later than 2000 B.C. make reference to a business practice called bottomry. This practice entailed the ship owner borrowing against his ship to cover the expenses of the trip. If his ship successfully returned, he repaid the loan with interest including a premium over normal interest. If his ship did not return, he did not have to repay the loan thereby recovering some or all of the loss. Great idea, but the Fed would not allow it today as they feel banking and insurance do not mix well.

The Phoenicians adopted this same practice and added the type of coverage for cargo with a respondentia loan. Being the fearless seafarers they were, the Phoenicians spread this practice over the known world and we have evidence of its use in India as early as 600 BC and in Greece by 400 BC.

We can also blame the Greeks and Romans for invention of the first life insurance agent, or at least the product (I wonder if they had to take continuing education?…). Anyway, these civilizations had the first benevolent societies we have records of, whose dues included provision for burial expenses and could include provisions for the living expenses of surviving family members. When Rome fell, former citizens continued the practices, especially in Italy and England through the trade guilds and, after the Renaissance, via "friendly societies". Friendly societies provided a mutual fund for the protection of all members but were often poorly managed and would run out of funds before running out of needy friends. I hate to say it, but they needed some actuaries!

Fire insurance seems to have also started in London when in 1667, a builder, Nicholas Barbon, hit on the idea of selling fire insurance. Because he was a builder, his first policies included the insurer's right to repair or replace the damaged property. I am sure he found this a useful provision for his construction business. He found that London had some incentive since much of the city had been destroyed the year before by fire.

In this same period and country, marine (ship and cargo) insurance was being provided via shipping brokers making the rounds of London with a policy for a particular trip looking for well-to-do Londoners who would pledge their wealth to secure a portion of the cargo or hull. Although Lombard merchants first began insuring ships and cargo in the fifteenth century, the practice blossomed in seventeenth century England. The Londoners would sign their names and the portion they were accepting under the policy wording, hence "underwriting" the policy. For this they would be paid a fee or premium. The broker would earn a percentage of the fees paid for his commission. This method of circulating a policy around the city was a bit unwieldy and also did not allow the good times that insurers and brokers are known for.

In the latter half of the seventeenth century, shippers and wealthy underwriters and brokers began to assemble informally in a London coffee house owned by Edward Lloyd. His original coffee house was located close enough to the Thames Street wharves to make a convenient meeting place for ship owners and masters to meet and discuss the latest news. Much information was passed on to Mr. Lloyd who began to post the information of common interest. Mr. Lloyd took no part in underwriting any risk but made it his vocation to provide a congenial meeting place.

Over the years Lloyd's took on a structure. In 1720, when the British government, in order to reduce the potential for fraud, essentially eliminated commercial insurers except for the Royally chartered companies, Royal Exchange Assurance and London Assurance, it left private underwriters such as Lloyd's alone. In 1734, Lloyd's began publishing the Lloyd's List weekly and in 1769, the underwriters established control with the move to the New Lloyd's Coffee House. This was completed in 1771 when seventy-nine underwriters put up the capital to buy the coffee house, established the first Committee of Lloyd's and formulated a constitution through a trust deed. Lloyd's was not constituted as a commercial entity until it was incorporated by an act of parliament in 1871.

The American colonies, prior to the Revolution, were generally insured by British underwriters employing agents in major maritime cities. When American insurers began attracting business, British firms undercut their rates. American insurers were not without their benefits though. While the British insurers required premiums to be paid in specie, American firms accepted paper currency. Because of their larger capacity, the British firms maintained control of the American market until the Revolution.

American founding fathers included insurers. In 1730, Benjamin Franklin helped form Philadelphia firefighters into the Union Fire Company. This group led to the formation of a fire insurance company by the name of the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Convenient for firemen to own the insurance company. Also, the only way to get fire department protection was to buy the coverage and obtain their firemark on your house. The Firemark was a metal emblem placed on the front of your house letting the fire companies know that they would be paid for protecting your house. Ben Franklin was the first director of the Philadelphia Contributionship. Its other founders included two other signers of the Declaration of Independence, John Morton and Robert Morris. Its sounds like the kind of scheme organized crime might run, "buy our insurance or we will let your house burn", but there were few organized or public fire departments except the private ones organized along the lines of the Philadelphia Contributionship.

The Insurance Company of North America (INA) was organized after the Revolution in 1792, with $600,000 in capital. It was the first insurer organized in the United States and it was organized as a marine insurer. INA still exists today as part of the CGINA Group (note the "INA" in 'CGINA") with whom the INA Group merged in the 1980's. The first insurer writing life insurance in the U.S. was Presbyterian Minister's Fund. They wrote for a limited market though INA is usually given the honor of being designated the first life insurer in the US also. Of course, business was not so hot for the first life insurer (six policies in five years) and they quit the line for over 150 years until resuming in 1956.

Wisconsin has been an active domicile for insurance companies since the turn of the twentieth century. Wisconsin was the first state in the union to have Workers' Compensation and Employers of Wausau was formed to write the coverage in 1911. Ten states followed suit with Wisconsin in 1911, and all states had workers' compensation laws by 1948.

Wisconsin also was a pioneer in mutual insurance companies. Many towns in Wisconsin formed town mutual insurers for their rural residents to write fire coverage on their farms. Many of these small companies date back to just after the formation of the state. They now can write farm liability and property coverages. In 1931, a dozen town mutuals formed their own reinsurer, Wisconsin Reinsurance Corporation to allow them to write greater limits of liability and give the individual mutuals greater capacity.

Wisconsin is also home to several stock insurance companies of note such as Sentry Insurance. The largest Insurer domiciled in the state is Northwestern Mutual Life, one of the largest and most respected life insurers in business today. Most of these companies grew up with the state and operate today.

If you have an interest in delving further into Wisconsin companies, most maintain web pages on the Internet where I did the bulk of the research for this article.

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