Insurance dates back 4000 years ago
Insurance is a concept that dates back much further than you might have initially imagined—about 4000 years to be precise. Insurance-like practices were actually adopted by ancient civilizations such as the Babylonians, Chinese, and Indians. These early traders were quite innovative in managing risk.
For instance, Chinese merchants of the time employed a clever strategy to safeguard their valuable goods. They would distribute their merchandise across multiple ships, reducing the risk of losing everything if one of the vessels encountered a mishap like capsizing. This strategy bears a resemblance to the modern concept of risk diversification.
Even more fascinating is the inclusion of a rudimentary form of insurance in the Code of Hammurabi, which dates back to ancient Babylon. This code contained a clause that allowed merchants to pay a small fee, akin to what we now call an “insurance premium,” to the lender. In return, this fee would cancel the loan if the goods were stolen or lost at sea, providing a form of financial protection.
Now, let’s fast forward a bit. If any of you are acquainted with logistics, you might have come across a term known as “The Law of General Averages.” This law laid out a principle that in the event of a disaster where cargo needed to be sacrificed or thrown overboard to save a ship, all merchants whose goods were spared were obliged to compensate those whose items were discarded. It essentially shared the burden of loss proportionally among all parties involved.
This concept of sharing the loss had been in existence for quite some time, but it was officially codified in a more modern sense in The York Antwerp Rules of 1890, a significant milestone in the development of maritime insurance practices.