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The incredible history of insurance – war, natural catastrophes and space travel

History of insurance

Few people in Cambodia could claim to have the insurance industry expertise and experience of People & Partners Insurance CEO, Jeff Whittaker. Ten minutes with Jeff and you quickly realise the history of insurance is a surprisingly fascinating subject. Disasters, pirates, exploration, space travel…you name it, insurance has played a pivotal role.

A brief history of insurance

If asked directly, most people these days would not admit to be interested in the history of anything at all. Why should they, when all their questions in life can be easily answered on Google?

Me, I’m old fashioned enough to believe that the history of any subject you care to choose can give you a real understanding of that subject. More importantly it can give you positive guidance as to what could happen in the future.

Many developments in the world came as a result of chance discoveries, catastrophic natural disasters, and wars as have come from pure hard-boiled research and testing. The history of insurance has been predominantly driven from the earliest of time to the present day by a combination of events, disasters, wars, technology, and now the digital age. Let’s start at the beginning of insurance’s history, around 800 BC!

A kind of Marine Insurance

Our history of insurance begins with the Chinese dynasty around 800 BC, which practiced a form of Marine Insurance. They were great seafarers. Ship owners and merchants pooled together to ‘insure’ against loss of a voyage. Later the Romans and Venetians did the same: a simple ‘sharing’ of risk amongst the owners and merchants for both the ship itself and the various cargoes involved.

Marine Insurance really started to develop in London many centuries later. In fact, it was in Edward Lloyds Coffee Shop, established in 1688. Incredibly, this preceded the Bank of England by six years!

Lloyds of London is now one of the leading insurance and reinsurance markets in the world and has a reputation for innovative thinking and sometimes crazy insurance covers. Marine covers like cargo, hull, liabilities, loss of use, general average, and salvage fees are all part of Lloyd’s rich history and the world’s expertise in these classes still reside within the Lloyds market, not just in London but in many countries such as Singapore, Hong Kong and India, with separate ‘Lloyds Syndicates’ around the world.

History of insurance - great fire of londonFire Insurance

The Hand in Hand Insurance Company was the first fire insurance company in the world, established in 1678. This happened 12 years after the great Fire of London in 1666, which burned for four days and consumed over 13,000 homes.

It’s hard to imagine that kind of devastation in cities today due to regulations, emergency services and improved building materials. But after such an incredible catastrophe, we imagine fire insurance policies would have been very popular among the people of London!

Of course, prevention is always better than cure and all the early fire insurance companies had their own fire brigades ready to fight your fire in an emergency. In fact in addition to your policy you were also given a cast metal ‘Fire Mark’ (in bronze, iron or lead although the latter didn’t last long in a fire, so they are extremely rare today).

You had to affix these to your premises in a clear and visible space. If no ‘Fire Mark’, then no assistance in a fire! This system lasted in the UK until the late 1890s when fire brigades were nationalised by the government, as they are to this day. Many people collect these Fire Marks today and they are usually painted brightly and make great additions to office decor.

At People and Partners Insurance, we have many of these around our office, which I’ve collected over the years. Mostly bronze hand painted replicas but they still look great. A perfect reminder of the old days.

Life Assurance

This started in the UK in the late 1760s. It was unregulated at first so anyone could insure anyone’s life! Imagine that: you could literally insure the life of a complete stranger!

The Life Assurance Act of 1774 brought in the principle of Insurable Interest for the first time and this is now one of the 6 basic principles or rules of insurance. The principle states that you must have some form of vested interest in the person you are insuring. We shudder to think of the ways policies may have been exploited before the Life Assurance Act!

For example the story goes that someone took out a big policy on a Lord Mayor of London. He was looking a little ill at the time. We’re not sure if any claim resulted from this life insurance policy but it certainly seems like a bizarre concept to modern insurers, and one of the first examples of a loophole being used in the early history of insurance.

Accident Insurance 1840s

The first type of accident cover was personal accident cover for railway passengers. The steam engine and locomotives powered the Industrial Revolution during the 1840s to early 1900s and many new types of accident insurance were born in this era:

  • Burglary
  • Third Party Liability
  • Workman’s Compensation
  • Employers Liability
  • Plate Glass Insurance

The transition from field to factory did not come without a price to be paid in social behaviour. When people congregate together, all the ‘social evils’ come out. Petty theft, burglary, unsafe work places (to save money on precautions), negligence whilst handling heat, pressure vessels, inflammable liquids… these increasingly common risks caused many accidents and loss to workers and innocent passersby.

Motor Insurance

Daimler and Benz invented the combustion engine in the early 1900s and the motor car was born. The first Motor Vehicle Law in the UK required someone to walk before the car with a red flag to warn people of its approach!

Motor insurance in its many forms is now probably, along with life insurance, the most popular form of insurance on the planet. Indeed, in most countries in the world, it is compulsory at law to buy it. We all love our vehicles, especially nice shiny new cars, so it can also get quite emotional when your insurers do not give great service (or even worse don’t repair your vehicle because it’s not a valid claim!).

Aviation Insurance

The first Aviation Insurance policy was issued by Lloyds. World War I and World War II both caused considerable development of airplanes and by the early 1950s, London was the center of the World Aviation Insurance market, and remains so today.

Like Marine insurance, in aviation you can ensure the hull itself, its cargo, its passengers, its crew, airports, landing strips etc. When there is an accident, it usually receives great attention from the world media but thankfully, most years, there are not too many crashes. All wide-bodied jets are usually reinsured back in the London and Lloyds Market which have billions of dollar capacity to take such huge risks.

Fire Consequential Loss Insurance (Business Interruption)

Business interruption cover was developed at Lloyds in the 1930s, giving a complete wrap-around cover against fire and perils causing loss of income and assets. This was the next step in giving businesses enough safeguards to survive, not only the misfortune of disasters and accidents, but also the subsequent period of recovery.

While there are many policies that guarantee the replacement of damaged property, equipment and stock, business interruption insurance provides companies with enough income to maintain important elements of the organisation, especially personnel.

Cuthbert Heath, an underwriter of the Heath Syndicate at Lloyds, first developed this form of cover and it is now a common add-on to the basic material damage fire or ‘all risks’ policy.

Agricultural Insurance

Insurance for crops and trees originated in the late 1930s in USA and Japan. Many countries in the world, especially developing nations, now embrace this kind of insurance. There are many different types of agricultural insurance schemes around the world. Many are a joint government and private initiative in order to develop a country’s agriculture industry.

Cover can be given on a named perils basis (fire lighting explosion, animal damage, pests etc) or an index-based basis. For instance, if rain exceeds a certain percent of an agreed figure, or if it does not meet the figure and a drought ensues, the insurers will pay.

Personally, as an underwriter, I have always lost money when writing this kind of businesses. The worst one was in Indonesia when wild elephants completely trashed a large plantation we insured. I don’t like this kind of insurance.

Construction All Risks (CAR) – late 1940s

Following the complete devastation of most of Europe after the Second World War, Construction All Risk cover was developed, and most construction and erection projects are insured today around the world using this kind of insurance policy.

I recently gave a 1 day seminar on this topic in Cambodia. I talked for more than five hours and didn’t exhaust the subject (just my voice). Each project or contract is unique, and the design of the policy cover should be tailor-made to fit that project by insurers. I did use some examples of ‘Mega Projects’ I have insured around the world, such as hydroelectric dams in Africa, huge refineries, LNG plants and petro chemical complexes in Indonesia and Malaysia, Sky Train and Subway Rail projects in Thailand.

I will watch with interest if and when we have our own Sky Train project here in Phnom Penh.

Miscellaneous Insurance Policies

Many of these policies were developed from the 1950s onwards as society progressed:

  • Health Insurance
  • Home Insurance
  • Travel Insurance
  • Jewellers Block Insurance
  • Money in Transit and in Vaults Insurance
  • Bankers Blanket Bonds
  • Contingency Insurance (e.g. Prize Indemnities, Hole in One Insurance)

I have insured and seen some crazy insurances around the world under this ‘contingency’ policy heading including David Beckham’s legs and Mickey Mouse’s Fiftieth Birthday cake but I feel another blog coming on, so I will make this a separate subject for later.

Oil and Gas Insurance – 1950s

Oil was first explored at the end of the 1800s. Much of the exploration, drilling and development upstream was covered first, then the downstream industries like oil refineries, pipelines, Liquid Natural Gas (LNG) and Liquid Petroleum Gas (LPG) plants were insured by specialist companies and Lloyds from the 1950s onwards.

It is still a huge (but risky!) form of revenue for the world insurance markets today. Risky in the sense that the basic products or ‘Feedstock’ i.e. Oil and Gas, are of course a ticking time bomb! If you have ever witnessed a ‘Blow out’ you would know what I mean.

Nuclear Power Insurance – 1960

Nuclear power plants were insured from the 1960s onwards following the first nuclear industrial accident in 1957 in Sellafield Cambria UK. Another ‘risky’ business still today as recent generations have witnessed.

Russia’s Chernobyl and Japan’s Fukiyama catastrophes still attract significant media attention, and in the case of Chernobyl, there was a terrible death toll as a result of radiation-related cancers, and mass evacuation of the area turned Pripyat into a ghost town. 335,000 people were affected, mainly due to relocation.

History of insurance - space travelSpace Insurance

The first space insurance policy was insured in the UK for the ‘Early Bird’ satellite launch in 1965. Space insurance was first issued by a specialist division of the Aviation Insurance Market. It is now a separate branch of insurance and we can issue construction covers, launch covers, payload covers, and even the ‘Life’ of the satellite or space stations.

As you’d assume, this means big risks and therefore huge premiums!

By huge premiums I mean that this has been one of the most expensive insurance classes in the world. After some disastrous launch failures, premiums on the rockets/satellites insured got as high as 30% of the value. At a one in three chance of loss, many governments did not buy this cover in the private space insurance market (mainly London) and waited until a few more successful launches brought the loss ratio down and therefore the premium level to a reasonable amount (around 9% on value the last time I looked).

Modern Miscellaneous Type Policies

From the 1970s onwards these policies have been developed at a rapid pace. It seems every month a new type of insurance policy is created around the world.

Some examples are:

  • Extended Warranty Insurance
  • Legal expenses Insurance
  • Website Insurance
  • Cybercrime

Cyber Crime is a hot topic at the moment in the Insurance and Reinsurance Markets of the world, so I’ll be covering Cyber Crime Insurance in a separate blog.

History of Insurance – Conclusion

In life as well as in business there is much to be learned from history. Insurance has developed from the earliest times of civilisation through to the 21st century, sometimes triggered by human inventions, sometimes by catastrophic events, but always by the need to satisfy the customer’s demands.

Jeffrey James Whittaker has spent 52 years in high-profile roles in the UK, Africa, Australia and South-East Asia, working on many ‘Mega Projects’ in sectors such as transport, dams and oil & gas. He is currently CEO of People and Partners Insurance PLC, and Vice Chairman of the Insurance Association of Cambodia (IAC). When Jeff isn’t working with insurance organisations, he enjoys big game fishing, cooking and singing.

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