Ancient Insurance Methodology |

Insurance Method

Some historians claim that similar methods for transferring or distributing risk have been practiced by ancient Babylonian and Chinese traders as far back as the 3rd and 2nd millennia BC, respectively. When ancient Chinese merchants would travel dangerous river rapids, they would redistribute their wares across many vessels to reduce the risk of loss due to any single ship’s capsizing. On the other hand, the ancient Babylonians created a system that ended up being practiced by early Mediterranean sailing merchants. This system was recorded in the famous Code of Hammurabi circa 1750 BC. When a merchant takes out a loan to fund his shipment, he would also pay the lender a premium in exchange for a guarantee that the loan is to be canceled in the event that the shipment is stolen or lost at sea.

Around the 8th century BC, the citizens of the Greek island of Rhodes created the concept of the ‘general average.’ This new system enabled groups of traders and merchants to have their wares insured collectively if they were to be shipped together. The insurance payments collected would be used to refund any merchant whose goods were compromised during the course of shipment, whether due to natural causes or sinkage.

Separate insurance agreements were also invented in Genoa in the 14th century, and insurance pools with landed estates were used as collateral. These insurance policies were not bundled with loans or other existing contracts. The earliest known insurance contract recorded dates from Genoa in 1347. Maritime insurance underwent significant developments during the next century, and premiums became more complicated based on the risks. This new type of insurance contract allowed insurance to separate itself from investment, as the separation of roles proved itself very useful in maritime trade and insurance companies.


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Insurance Methodology

Insurance Methodology