Tuesday , September 17 2019
Home / Cyril Morong: Dangerous Economist / Some History of Insurance

Some History of Insurance

Summary:
See Insuring Against Disaster: Insurance policies go back to the ancient Babylonians and were crucial in the early development of capitalism by Amanda Foreman of The WSJ. Excerpts: "the basic principle of insurance—pooling risk in order to minimize liability from unforeseen dangers—is one of the things that made modern capitalism possible.The first merchants to tackle the problem of risk management in a systematic way were the Babylonians. The 18th-century B.C. Code of Hammurabi shows that they used a primitive form of insurance known as “bottomry.” According to the Code, merchants who took high-interest loans tied to shipments of goods could have the loans forgiven if the ship was lost. The practice benefited both traders and their creditors, who charged a premium of up to 30% on

Topics:
[email protected] (Cyril Morong) considers the following as important:

This could be interesting, too:

Simon Wren-lewis writes On the supposed gap in the centre of UK politics, or the alleged powerlessness of the UK median voter

Eric Crampton writes Keeping up with the state of play on vaping

Paul Krugman writes Republicans Don’t Believe in Democracy

Jared Bernstein writes The King of the Blues Birthday!

See Insuring Against Disaster: Insurance policies go back to the ancient Babylonians and were crucial in the early development of capitalism by Amanda Foreman of The WSJ. Excerpts:
"the basic principle of insurance—pooling risk in order to minimize liability from unforeseen dangers—is one of the things that made modern capitalism possible.

The first merchants to tackle the problem of risk management in a systematic way were the Babylonians. The 18th-century B.C. Code of Hammurabi shows that they used a primitive form of insurance known as “bottomry.” According to the Code, merchants who took high-interest loans tied to shipments of goods could have the loans forgiven if the ship was lost. The practice benefited both traders and their creditors, who charged a premium of up to 30% on such loans.

The Athenians, realizing that bottomry was a far better hedge against disaster than relying on the Oracle of Delphi, subsequently developed the idea into a maritime insurance system. They had professional loan syndicates, official inspections of ships and cargoes, and legal sanctions against code violators."

"In Christian Europe, insurance was widely frowned upon as a form of gambling—betting against God. Even after Pope Gregory IX decreed in the 13th century that the premiums charged on bottomry loans were not usury, because of the risk involved, the industry rarely expanded. Innovations came mainly in response to catastrophes: The Great Fire of London in 1666 led to the growth of fire insurance, while the Lisbon earthquake of 1755 did the same for life insurance.

It took the Enlightenment to bring widespread changes in the way Europeans thought about insurance. Probability became subject to numbers and statistics rather than hope and prayer. In addition to his contributions to mathematics, astronomy and physics, Edmond Halley (1656-1742), of Halley’s comet fame, developed the foundations of actuarial science—the mathematical measurement of risk. This helped to create a level playing field for sellers and buyers of insurance. By the end of the 18th century, those who abjured insurance were regarded as stupid rather than pious. Adam Smith declared that to do business without it “was a presumptuous contempt of the risk.”"


I play a game in class that touches on insurance. Click here to see the Lessons From the Supply and Demand Game.

The insurance market has a problem, though. The customers don’t always tell their insurance company their bad habits (like smoking, riding a motor cycle without a helmut, etc.). So they don’t know how risky you are and therefore don’t know what price to charge you. So sometimes these markets are not efficient.

Related posts:

Lose the Fat to Lower Your Insurance Rates
How Did Astronauts Of The 60s "Purchase" Life Insurance?
Should Overweight People Pay More For Health Insurance?
Should We Pay People To Adopt A Healthy Lifestyle? 

'Spy car' worries raised by new Allstate patent
Should your company or insurer reward you for meeting exercise goals?
How insurance companies are using technology to better assess how risky customers might be
The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender

Leave a Reply

Your email address will not be published. Required fields are marked *