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What is Insurance?

In the simplest terms - insurance is all about putting a price / value on risk.

How much would I lose financially if such-and-such went wrong
How much of a premium am I prepared to pay to guard against that risk occuring?

Some common forms of insurance cover are - business / commerce risks, automobiles, homes, boats, worker's compensation and health. Life insurance guarantees payment to the beneficiaries when the insured person dies. Life insurance premiums are based on mortality tables constructed on the statistical laws of mortality and compound interest. These innovative tables emerged as far back as the 17th Century and made it possible for the first time to scale the premium rate to a person's age - whereas previously the rate had been the same for all age groups. In a broad economic sense, insurance transfers risk from individuals to a larger group, that is better able to pay for losses.

The History of Insurance

The roots of insurance can be traced back to the very beginnings of commerce and probably the ancient caravan trade - where those merchants involved in the commerce venture, grouped together to assume and share the financial (more than the physical) risks of the caravan against bandits and brigands that molested the merchant caravan as it journeyed from one location to another. With the subsequent explosion in seafaring trade and the significantly greater financial exposure involved - various associated bodies were formed solely to underwrite marine insurance protection for the ship-owners and merchants, from loss at sea by fire and shipwreck and attack by pirates.

In London, Lloyd's Coffee House (1688) was a place where merchants, ship-owners, and underwriters met to transact business and by the end of the 18th century Lloyd's had progressed into one of the first modern insurance companies and it still operates in present times. There can hardly be a soul the world over today who hasn't heard of Lloyd's of London.