Tuesday, July 18, 2017

A brief history of insurance!

Insurance is an incredibly interesting topic, especially when you realize just how old this form of protection really is. We had thought it wasn’t any older than a couple of hundred years, but we couldn’t be more wrong.

It actually has a history stretching back far into the past, with the earliest known versions of it being found in 3000-2000 BC. Insurance has been around so long it’s even found inscribed on the Code of Hammurabi, the first written laws. Imagine that! It even predated what was considered the official foundation of law, that’s some history.

Insurance, as we think of it in the modern age, came into existence sometime around the Great Fire of London, where the devastation that took place brought about the idea of property insurance. While insurance had up to this point been considered some kind of convenience, it was now clear to the inhabitants of London that insurance was something that could protect a family fortune, and indeed an entire estate in the event of disaster.

From there sprang all the forms of insurance we know today, including underwriting ventures in the event of failure (common in the age of sailing ships and questionable seas), to car insurance and life insurance. We even have an Insurance Awareness Day on June 28. It celebrates the history and necessity of this fantastic invention, and encourages people to understand the important role it can play in their lives.

Interestingly, the 'unsinkable' Titanic was insured for a mind-boggling $10 million by Lloyd's! It was considered a prestigious risk, with cover for the hull alone standing at $1.4 m – around $100 million in today’s money. Numerous Lloyd’s syndicates pitched in, covering amounts ranging from £10,000 to £75,000.

Despite the high levels of claims arising from the tragedy, insurers paid out in full within 30 days.

In India, insurance has an even deeper-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts have reference to marine trade loans and carriers' contracts.

Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.

At the dawn of the twentieth century, many insurance companies were founded. In 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company, which was founded in 1906, and is still in business.

The Government of India issued an Ordinance on 19 January 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it opened for business in 1973.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC).

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