Page 11 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes Romans used burial clubs as a form of life insurance, providing funeral expenses for members
and later on, for payments to the survivors for their future subsistence.
With the growth of towns and trade in Europe, the medieval guilds undertook to protect their
guild members from losses by fire and shipwreck, provide ransom to get free from the captivity
of pirates, and support in sickness and poverty and to provide decent burial. By the middle of the
14th centuries as evidenced by the earliest known insurance contract (Genoa, 1347), marine
insurance was practically universal among the maritime nations of Europe.

The first kind of formal insurance business was marine insurance. Traders who met in the
Lloyd’s coffee house in London agreed to share the losses of their goods carried by ships while
on voyage to various countries. The losses normally occurred due to attack of pirates who
robbed on the high seas or because of bad weather, which spoiled and destroyed the goods or
sinking of the ship. The first insurance policy was issued in England in 1583.
Insurance may be defined in two ways:
Figure 1.1: Insurance

INSURANCE

Providing Whether
Protection to All, Big or Small

Risk is the uncertainty of a financial risk. Insurance primarily creates counter part of the risk,
which is security.

Notes
1. Insurance is defined as a cooperative device to spread the loss caused by a particular
risk over a number of persons who are exposed to it and
2. It does not reduce the risk,
3. It does not alter the probability of risk, but
4. It only reduces/spreads the financial losses.

Figure 1.2: Two Common Parties to Risk and Insurance

The Risk

The Insured The Insurer

Thus, insurance is a financial arrangement that spreads the costs of losses among the members
of an insurance pool.

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