Page 8 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 1: Evolution and Meaning of Insurance

All these instances gave effect to the concept of mutual assistance in case of loss, but the actual Notes
concept of mutual assistance came to the fore in guilds and similar associations and societies
which existed in Europe and England during the middle-ages.
Just remember that these associations afforded members (or their dependants) assistance in case
of loss caused by perils such as fire, shipwreck, theft, sickness or death. Originally, the extent of
the assistance was determined by the actual need of the member who suffered the loss, eventually,
however, he would be assisted to the extent of his actual loss. In many of these guilds individual
members, and not merely the guild itself, were under a legal duty to assist those members who
suffered a loss. Once provision was made for the latter to have a corresponding legal right to
claim such assistance, the development towards proper mutual insurance was completed.
Separate insurance contracts (i.e. insurance policies not bundled with loans or other kinds of
contracts) were invented in Genoa in the 14th century, as were insurance pools backed by
pledges of landed estates. These new insurance contracts allowed insurance to be separated from
investment, a separation of roles that first proved useful in marine insurance. Insurance became
far more sophisticated in post-Renaissance Europe, and specialized varieties developed.
On 3 December 1591, one hundred Hamburg house-owners concluded the so-called “Hamburg
fire contracts”, which are generally regarded as some of the first examples of true mutual
insurance contracts that we have today.
Toward the end of the seventeenth century, London’s growing importance as a centre for trade
increased demand for marine insurance. In the late 1680s, Mr Edward Lloyd opened a coffee
house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby
a reliable source of the latest shipping news. It became the meeting place for parties wishing to
insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd’s of
London remains the leading market for marine and other specialist types of insurance, but it
works rather differently than the more familiar kinds of insurance.

Fire of London

The fire would have started in Pudding Lane in the king’s appointed baker’s shop. His maid
failed to put out the ovens at the end of the night, and ignited the wooden home of Farriner. The
maid failed to escape the fire, and was one of its few victims. Once it started, however, the fire
spread quickly. The city was basically made out of wood and during September very dry. Strong
winds fanned the flames.
The fire gutted the medieval City of London inside the old Roman City Wall. It consumed 13,200
houses, 87 parish churches, St. Paul’s Cathedral, and most of the buildings of the City authorities.
It is estimated that it destroyed the homes of 70,000 of the City’s 80,000 inhabitants. The death
toll from the fire is unknown and has traditionally been thought to have been small, as only a
few verified deaths are recorded.
The Great Fire cost London an estimated £10 million, at a time when its annual income was just
£12,000. Not surprisingly, this expense focused minds on the idea of insuring against fire.
By the end of the 17th century, three London societies were actively engaged in the business –
Nicholas Barbon’s “Fire Office” was established in 1680, the “Friendly Society” established in
1683, and the “Hand-in-Hand” Office. The first insurance company in the United States underwrote
fire insurance and was formed in Charles-Town, South Carolina, in 1732.

Benjamin Franklin helped to popularize the practice of insurance in North America - particularly
against fire – and in 1752, he founded the Philadelphia Contribution-ship for the Insurance of
Houses from Loss by Fire. Franklin’s company was the first to make contributions toward fire

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