Page 10 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 1: Evolution and Meaning of Insurance

To make a long story short, insurance is being conducted over a vast array of “lines of business” Notes
that encompass personal, commercial, marine, aviation, agriculture, life, health, financial and
engineering insurance. Virtually, anything from the mundane to the bizarre can be insured, as
Lloyd’s is famous for insuring the life, health, legs or even noses of actors, actresses and/or
sports figures.

Self Assessment

Fill in the blanks:
1. Insurance is simply the equitable transfer of a risk of a loss, from one entity to another, in
exchange for a ……………………………
2. These new insurance contracts allowed insurance to be separated from ………………………

1.2 Definition of Insurance

Let’s read some of the great sayings related to insurance.
Man on earth always had an eye on the avoidance of ill-luck and has tried in all ages somehow
to ensure himself and to take out a policy of some sort on which he paid a regular premium in
some form of social denial and sacrifice.

– Summer and Keller
It existed in some form of mutual or communal protection in the Aryan tribes some 3000 years
back.

– Stone and Cox
The word “Bima” was derived from the Persian word “Bim” meaning “Fear” and “Bima” means
“expense” incurred to get rid of fear.

– Persian Dictionary
From the beginning, human societies have tried to find ways to soften the shocks of existence.
Our ancestors were very much aware that no individual could do it alone, only by pooling the
resources of the many; the unfortunate few could be helped.
This simple idea of mutual cooperation persists like a welcome footpath through the incredible
tangle of human history.

Example: In ancient times, enterprising merchants used to send caravans and ships to
trade with all parts of the known world: with Egypt, Phoenicia, India and China.
Traders in olden times devised a system of contracts in which the supplier of the capital of
business would agree to cancel the loan if the trader was robbed of his goods. The trader who
borrowed the capital paid an extra sum (a premium) for this kind of protection over and above
the usual interest. As for the lender, collecting these premiums from many traders made it
possible for him to absorb the losses of the unfortunate few, who really suffered the loss.
Above arrangement proved to be more sensible and appealing than the earlier one whereby the
trader’s ship and other tangible property as well as his life and those of his family as well was
pledged (as a slave).

Accordingly, the practice was sensibly legalized in the code of Hummurabi in 2100 B.C. The
Phoenicians and the Greeks applied a similar kind of system to their sea-born commerce. The

LOVELY PROFESSIONAL UNIVERSITY 5