Historical development of Insurance5 min read



Insurance is the protection from financial loss. It is a form of risk management used to hedge against the risk of contingent and uncertain loss and to lessen the burden of the losses incurred. In the earlier times, it is known by different names. One of the first known insurance contracts is bottomry contracts, named by the merchants of Babylon around 4000-3000 BCE. It was also practiced in India in 600 BCE and as well as in ancient Greece in the 4th century BCE. In these Bottomry Contracts act, loans were granted to the businessmen or merchants with the provision that if the jettison was lost at sea, the loan did not have to be repaid. The interest on the loan covered the risk of insurance. These bottomry contracts evolved into marine insurance and became highly developed in the 15th century. Insurance contracts have evolved differently in different countries.


  • In 1666, Fire insurance arose much later, obtaining impetus from the Great Fire of London.
  • A lot of companies were started in England after 1711, during the so-called bubble era. Many of them were fraudulent and illicit, get-rich-quick schemes concerned mainly with selling their securities to the public. Nevertheless, two important and successful English companies were formed during this period only—the London Assurance Corporation and the Royal Exchange Assurance Corporation. This marked the beginning of modern property and liability insurances.
  • No discussion of the early development of insurances in Europe would be complete without reference to Lloyd’s of London, the international insurance market. It began in the 17th century as a coffeehouse patronized by merchants, bankers, and insurance underwriters, gradually becoming recognized as the most likely place to find underwriters for marine security.
  • Edward Lloyd supplied his customers with shipping information gathered from the docks and other sources; this eventually grew into the publication Lloyd’s List, still in existence. Lloyd’s was reorganized in 1769 as a formal group of underwriters accepting marine risks.
  • Lloyd’s became the dominant insurer of marine risks, with the growth of British sea power, to which were later added fire and other property risks.
  • Today, Lloyd’s is a major reinsurer as well as a primary insurer, but it does not itself transact the business; this is done by the member underwriters, who accept insurance on their own account and bear the whole risk in competition with each other.

United States of America

  • The first American insurance company was organized by Benjamin Franklin in 1752 as the Philadelphia Contributionship.
  •  The first life insurance company in the American colonies was the Presbyterian Ministers’ Fund, organized in 1759.
  •  By 1820, there were 17 stock life insurance companies in the state of New York alone. A lot of the early property insurance companies failed from speculative investments, poor management, and inadequate distribution systems. Others failed after the act of the Great Chicago Fire in 1871 and the San Francisco earthquake and fire of 1906. There was little effective regulation, and rate-making was difficult in the lack and absence of cooperative development of sound statistics. Many problems also beset the life insurances business.
  • In the era following the U.S. Civil War, malpractices developed: dividends were declared that had not been earned, reserves were inadequate, advertising claims were exaggerated, and office buildings were built that sometimes cost more than the total assets of the companies. 33 life insurance companies failed between 1870 and 1872, and another 48 between 1873 and 1877.
  • After 1910 life insurances enjoyed a steady growth in the United States. The annual growth rate of insurance in force over the period 1910–90 was near about 8.4 percent—amounting to a 626-fold increase for the 80-year period. Property-liability insurances had a somewhat smaller increase. By 1989 some 3,800 property-liability and 2,270 life insurance companies were in business, employing about two million workers. In 1987, U.S. insurers wrote about 37 percent of all premiums collected worldwide.


  • The first mentions of insurance in Indian history are in
  • Manusmritis
  • Dharmasastra
  • Arthasastra
  • The earliest traces of insurances are in the form of marine trade loans/ contracts and carriers’ contracts
  • England has a behemoth influence on this business in India. In 1870, British Insurance Act was enacted and in the next three decades, different foreign and indigenous companies were started and this made a stiff competition between the competitors. In 1888, the establishment of Oriental Life Insurance Company in Calcutta was the advent of the life insurance business in India.
  • In 1914, the Government of India started publishing returns of Insurance Companies, and to regulate the insurance contracts, different acts were passed
  • Indian Life Assurance Act, 1912
  • Indian Insurance Companies Act, 1928
  • Insurance Act, 1938(Earlier, Act was amended in the welfare for protecting the interest of Insurance public).
  • In 1950, after the Independence, Insurance Amendment Act abolished Principal Agencies as there were numerous insurances companies and a level of stiff competition between them. There were a plethora of allegations of unfair trade practices. So, the government decided to nationalize the insurances business.
  •  On 19th January 1956, an Ordinance was issued for nationalising the Life insurance sector and LIC came into existence. The LIC absorbed 154 Indian, 16 non-Indian insurers, and 75 provident societies. The LIC had a monopoly till the late 1990s when the insurance sector was reopened for the private sector again due to the liberalization of the market.
  • In 1993, the Government set up a high-powered committee under the chairmanship of R.N. Malhotra, former RBI Governor, to propose the recommendations for reforms in the sector. The committee submitted its report in 1994.
  • In 1999, following the recommendation of the Malhotra Committee Report, the Insurance Regulatory and Development Authority of India (IRDAI) was constituted to regulate and develop the industry as an autonomous body. In April 2000, the IRDAI was incorporated as a statutory body and the main objective being the promotion of competition to enhance better customer satisfaction.


The insurance sector is a colossal and mammoth sector and always keeps on steadily growing. Together, with the banking sector, it acts to add a great percentage to the country’s total GDP. A Well-developed evolved and growing sector is a boon for economic development as it provides long-term funds and loans for the development of different sectors at the same time strengthening the risk-taking ability of the country.

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