Insurance – A History of Protection

June 28, 2021

For many of us, insurance is not something we think of every day.  It is, however, something we depend on every day to protect what matters most to us – our families, health, homes and businesses. According to a Statista Research Department report dated February 11, 2021, in the U.S. alone, there are 266.89 million life insurance policies in force with the average face value among of individual life insurance policies in the U.S. at $168,000. We may not think it about, but insurance also is a major driver of our economy. For example, the 773 life insurance companies in the U.S., have U.S. life insurance assets totaling $6.99 trillion dollars. The Insurance Information Institute (www.iii.org) reported that the entire U.S. insurance industry (i.e. life/annuity and property/casualty) employed 2.9 million people in 2020. So, you can see that the insurance industry has a significant impact on our individual lives and the economy at large. Its history, growth and development are worth noting especially as the nation recognizes the industry on National Insurance Awareness Day, June 28, 2021.

From King Hammurabi to Benjamin Franklin

Some believe the first insurance policy was written in ancient times on a Babylonia monument which had King Hammurabi’s Code of written laws carved into it. Over time, other examples of insurance emerged. Medieval Europe used insurance within its guild system wherein members would pay into a pool to cover their losses resulting from fires and robberies, as well as to provide support to a member’s family if he should become disabled or killed. When exporting to the “New World” from Europe began in the 1600s, the shippers sought risk protection from multiple investors. These investors took on the risk of a voyage, underwriting a share of cargo.

During the latter part of that century, in 1666, the Great Fire of London occurred, destroying over 13,000 buildings, including homes, and gave birth to life insurance by companies that previously were involved only in marine insurance. With the industrial revolution underway, European insurance companies began growing. In the New World, America, the perils that the earliest colonists face were not being underwritten by any insurance company. This led to an especially perilous period known as “The Starving Time” when three out of four settlers in America’s first permanent English settlement, Jamestown, Virginia, died of starvation and related diseases. It was not until 1751when the first U.S. life insurance company, the Presbyterian Ministers’ Fund, was established by Benjamin Franklin.

Prior to the Revolutionary War, there were various domestic fire and mutual marine insurance companies, and after the war, several property insurers, including one established in 1792 known as The Insurance Company of North America. In the years and wars that followed, other milestones were reached by the U.S. insurance industry, including rising per capita insurance spending, and the almost six-fold increase in life insurance policies in force which occurred over the period from 1870 to 1895. Another pivotal year for the U.S. insurance industry came in 1935 with the enactment of the Social Security Act. At first, many insurers saw the legislation as a threat to their business, but eventually, it was recognized as another important financial protection for Americans.

With Growth Came Regulation

As the U.S. insurance industry developed and expanded both here and abroad so too did the need for regulation.  Both federal and state governments developed rigorous guidelines for insurance companies, for both U.S. companies and non-U.S. companies.  Also formed in 1871 was the National Association of Insurance Commissioners whose role was to develop law and serve as a forum for the discussion surrounding new regulations. These regulations were considered especially important during times of natural disasters (e.g., hurricane, floods, wild fires), acts of terrorism (World Trade Center bombings, 9/11 events), and financial system collapses (i.e., 1929 Great Depression, 1987 Black Monday, and 2008 Global Financial Crisis).  Through all these events, the insurance industry has proven to provide vital protection that helped cover risks and prevent an even further downward spiral during especially critical periods.

Insurance in America Today

Today, the U.S. insurance industry is one of the nation’s largest industries. In addition to the 773 U.S. life insurance companies, Statista Research reports that in addition to the aforementioned U.S. life insurance companies’ impressive performance statistics, U.S. property and casualty netted P&C insurance premiums valued at $637.7 billion and employ an estimated 647,000 individuals. If you consider the financial impact of this data, you can  better understand the positive impact U.S. insurers are having on the lives of Americans. Whether life insurance, voluntary insurance, medical stop loss, or various property and casualty coverages, insurance provides vital financial protection and the industry is a major economic driver.